table of contents · park national corporation (park or prk) 2010 net income was $74.2 million, the...

To Our Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Stockholders’ Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Park National Corporation Directors & Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Directors:

Century National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Fairfield National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Farmers and Savings Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

First-Knox National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

The Park National Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Park National Bank of Southwest Ohio & Northern Kentucky Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Richland Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Second National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Security National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

United Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Unity National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Vision Bank – Alabama Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Vision Bank – Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Officers of Corporation & Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Financial Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Management’s Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Financial Statements:

Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Consolidated Statements of Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Consolidated Statements of Changes in Stockholders’ Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

T A B L E O F C O N T E N T S

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Park National Corporation (Park or PRK) 2010 net income was$74.2 million, the same amount we reported one year ago. Netincome available to common shareholders, after deduction ofpreferred stock dividends and the related accretion, was $68.4million in both 2010 and 2009.

We maintained dividends on Park common stock last year during a time when most large banking companies previously reduced,substantially in many cases, dividends paid to their stockholders.Park’s board of directors declared the first quarter dividend of$0.94 per common share payable on March 10, 2011 forshareholders of record on February 25, 2011, continuing a pattern we expect to follow in 2011.

Diluted earnings per common share were $4.51 for 2010 and$4.82 for 2009, a decrease of 6.4%. Common shares outstandingwere 15,398,934 at December 31, 2010 compared to 14,882,780at December 31, 2009, an increase of 3.5%.

We raised more capital last year, after successfully doing the same in 2009. In 2010 we added $33.5 million in Tier 1 capital from thesale of 509,184 shares of common stock.

The sales price of the shares sold in 2010, net of all expenses, was $65.79 per share, or approximately 1.6 times the Parkcommon stock value of $41.71 at December 31, 2009. It wasuncommon for banking companies to sell common stock at a price significantly above common book value during 2009 and2010, so we are very pleased with the results.

As stockholders, our preference is to refrain from raising capital by selling common stock. Being masters of the obvious, issuingmore common stock causes ownership dilution and typicallyreduces earnings per share, neither being attractive alternatives. But general economic conditions, the state of the banking industryand our desire to fortify our capital position, caused us, for thesecond consecutive year, to conclude we should raise additionalcapital, if it could be done at a reasonable price. And the net pricewe received was very reasonable compared to industry peers.

The additional common equity (approximately $87 million in total for 2009 and 2010) provides Park with a critically importantlevel of additional safety. Below is a brief summary of commonshareholders’ equity since December 31, 2008, including theadditional capital:

December 31,(dollars in millions) 2010 2009 2008

Park common shareholders’ equity $649 $621 $547

The additional capital discussed above increased our capital ratios to be well beyond regulatory standards considered to be well capitalized. We continue to monitor banking conditionscarefully as we move into 2011.

While we don’t have current plans to raise additional capital, we think it’s important to be able to react in an efficient and timelymanner should the occasion arise. For that reason, our board isrecommending that stockholders approve a change to our bylawsthat eliminates preemptive rights. You will find more detail of thisrequest in the proxy statement for this year’s annual meeting.

We believe preemptive rights made great sense for ourstockholders several years ago when we were more closely held and our stock traded infrequently. Daily trading activity in PRK has improved from years ago, although our volume remainsmodest compared to many publicly traded companies. Yet it is veryclear that should your board of directors approve a new issue ofcommon stock, and if we as stockholders wish to maintain ourrelative ownership position, we can simply call a broker and thenecessary additional PRK stock can be purchased, leaving ourrelative ownership in PRK intact. Preemptive rights for ourstockholders in the current environment has outlived its usefulness.

Eliminating preemptive rights will provide your board of directorswith greater flexibility to manage capital. Importantly though,eliminating preemptive rights does not alter the approval processthat requires formal action by your board of directors. Weencourage your support of this recommendation and as always, are available to answer questions on this topic as well as othermatters of importance.

An ongoing challenge for us since mid-2007 has been addressingconditions within markets served by our Vision Bank subsidiary,operating in Baldwin County, Alabama and the panhandle ofFlorida.

The oil spill in the Gulf of Mexico in April, 2010 significantlydelayed an economic recovery in these markets. The oil spillexacerbated an already poor economy in the Gulf area. TheHorizon deep water well was successfully capped late in thesummer last year, but unfortunately, not until after the mostsignificant part of the tourism season concluded. Tourismexpenditures within the Gulf coast areas were greatly curtailed last year.

Businesses dependent upon tourism suffered considerably. Whilemany businesses were aided in part by BP relief funds, the simplefact is that markets served by Vision Bank remain significantlychallenged and recovery is not expected to occur until 2011,

T O O U R S T O C K H O L D E R S

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2012 or even longer. We continue to explore a number ofalternatives to lower our exposure to inordinately high levels oftroubled assets, the majority of which are held within the VisionBank portfolios.

We continue to experience high levels of net charge-offs andprovisions for loan losses, primarily related to the exposure at ourVision Bank subsidiary, where property values have experiencedsignificant devaluations as a result of the recent recession and theoil spill in the Gulf of Mexico. That said, provisions for loan lossesexperienced a moderate decline in 2010, a trend that we expectwill continue in 2011. Here is a useful historical comparison:

(dollars in millions) 2010 2009 2008 2007 2006

Annual provision forloan losses $64.9 $68.8 $70.5 $29.5 $3.9

Allowance for loan lossesas a percentage of loans 2.57% 2.52% 2.23% 2.06% 2.03%

We remain committed to doing all within our power to reduce the level of troubled assets on our balance sheet. Do we expect a return to 2006 when we had minimal losses? No. But we knowimprovements in asset quality are possible, necessary andultimately inevitable.

We are extremely pleased with the efforts of our associates coupled with the exceptional work being done by SoutheastProperty Solutions, LLC. (SPS), a firm we engaged to bolster ourcollection efforts at Vision Bank. Troubled assets increased for thethird consecutive year at Vision Bank but still we made progress by getting many problems resolved in both Florida and Alabama.Unfortunately, more problem assets came on the books than wentoff last year, a trend that will reverse itself in the future.

The operating results of our Ohio-based subsidiaries continue to be superb.

Our collective Ohio banking divisions of The Park National Bank (PNB) generated over $100 million in net income last year, producing ratios that continue to compare very favorably to our peers. The Uniform Bank Performance Report, produced by the federal government, compares key operating ratios of PNB,including all of our 11 community bank divisions in Ohio andnorthern Kentucky, against median performance results for allother commercial banks in the country having assets greater than$3 billion. Below is a key ratio from the report that demonstratessuperior performance over the past 3 years:

December 31, 2010 2009 2008(dollars in millions) PNB Peers PNB Peers PNB Peers

Return on average assets 1.66% .50% 1.65% –.24% 1.60% –.16%

PNB finished in the 92nd, 91st and 95th percentile rankingcompared to peers in the previous 3 years respectively, beginningwith 2010. Performing in the top 10% in the country is very special.

Our other Ohio-based subsidiary is Guardian Financial ServicesCompany, headquartered in Hilliard, Ohio. Last year Guardian’s netincome exceeded $2 million for the first time. Earl Osborne, MattMarsh and all the associates at Guardian are clearly contributing toPark’s success.

On a larger scale, an economic recovery, while modest, continuesat the national level. But stubbornly high unemployment continues.In many markets served by our affiliates, unemployment is atdouble-digit levels with little promise of relief in the near term.

The national economy is awash in liquidity, but there is only modest loan demand, largely due to reduced levels of consumerspending which in turn, causes business and industry to maintain a conservative posture. New commercial construction, additions to manufacturing facilities and improvements to existing facilities(including equipment replacement) is occurring at a very slowpace. The single family housing inventory in each of the markets weserve has significant excess supply causing new home constructionto remain at historically low levels.

A positive note is that long term interest rates remain very attractive for borrowers. There were periods during 2010 wherewe experienced interest rates for single family home loans thatwere the lowest in over 50 years. Accordingly, our single familyhome loan refinance volume was the 3rd highest in the past 10 years.

We are proud of our associates who were able to originate, process and service such a high volume of loans for customers in2010. A nice story within this robust activity was that 1 in 5 of ournew mortgage loans paid off other lenders. Thus, we were pleasedto welcome many new customers to the Park affiliate family lastyear. Since our associates were able to maintain pace with theexceptionally strong refinance demand, our affiliate banks typicallyled mortgage production levels in their headquarter counties.

On another front, we took advantage of three very unusualconditions that existed last year, and already once in the firstquarter of 2011, resulting in the sale of securities at significantgains. The pre-tax gains were approximately $11.9 million last yearand $6.6 million in February of this year.

It is rare for us to take gains in the investment portfolio. Gains aretypically little more than accelerating the recognition of income andcorresponding income taxes. But certain events, such as FederalReserve actions regarding monetary policy implementation, createdopportunities with certain securities. Rather than risk the chance


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that the gains would vanish, we decided to take the gains andreinvest the proceeds into other investments that fit within ourpolicies dealing with sound asset and liability management.

In our view, 2010 may be remembered as the “year of technology”for Park. We prefer that label instead of the “year of problemassets.”

As a result of a revised technology strategic plan adopted in late2008, we embarked on a program to significantly improve ourcore operating systems, to dramatically improve our disasterrecovery capability and to change the way we process and handlepaper items at the teller counter and with our commercialcustomers in their place of business.

The result was a highly successful upgrade in our teller operationswhile offering commercial customers ways to gain credit for theirpaper check deposits without making a trip to the bank. Electronicimaging is here to stay, and we now offer commercial andconsumer electronic banking services that are competitive within our markets.

Further improvements in our technology related services will occur this year. Web sites at each of our banking divisions will see “makeovers”, the end result of which will be a cleaner, morelogical and user-friendly online experience. We soon will have anew fully integrated disaster recovery site that is redundant to ourmain frame and operating system. We are far more comfortableknowing that, in the event of equipment failure, a natural disasteror for some other reason we lose use of the main frame at ouroperations center, our customers will continue to be served in a near seamless fashion on new main frame equipment.

All the technology in the world is a poor substitute for high quality service delivery that distinguishes Park from ourcompetition. As we frequently remind our associates, the color of money is green for everyone. It’s the way we handle the moneythat allows a customer or prospective customer to appreciate and value our service.

We think about service a lot ...how we deliver service, how we canimprove and what lessons we can learn from our experiences andfrom others. Last year we embarked on a systematic analysis of our service culture. We enlisted the help of an expert who hasworld-class experience helping other companies standardize and markedly improve their service quality.

The result is what we call “Service Excellence” and it is our attempt to elevate service to higher levels. We will implement astandardized set of best practices throughout our organization by mid-2011. Each day, you will find us reviewing our service

standards, sharing stories of great and not-so-great service. We learn from each other and we begin each day with great service in mind. We hope you notice...

We are fortunate to have a dedicated board of directors providingcounsel and support during challenging economic times. We werepleased last year when Steve Kambeitz assumed leadership of theAudit Committee and equally pleased in early 2011 when SarahReese Wallace agreed to assume leadership of the NominatingCommittee. Sarah’s father, of course, is J. Gilbert Reese, the son of Everett D. Reese, and Sarah provides family continuity andjudgment to Park dating back to 1921 when Everett first joined thePark bank. Since becoming an emeritus board member in 2009,Gib attends board meetings occasionally making sure we do notstray too much.

As we close this letter, we want to recognize Bill McConnell. The Ohio Bankers League (OBL) recognized Bill as a “Pioneer in Banking” last October at their annual meeting in Columbus. In the OBL’s decades-long history, he is only the second banker so honored. Bill has brought recognition and honor once again to Park. Only Ev Reese and Bill McConnell served, from the samebank in the state of Ohio, as the chairman of the American BankersAssociation in the 20th Century. Bill’s dedication to the profession,to the industry, and to leadership within our bank and to ourcommunities is legendary. We were so proud when Bill wasrecognized by the OBL.

As always, we close with a commitment to do all we can to improvethe performance of Park. We cannot control outside events like theeconomy, the weather and political winds. But we can control oureffort, our dedication and our perseverance. Our customers, ourcommunities, our colleagues and our stockholders deserve thebest efforts on all fronts—and they’ll get them. You can help bysending folks our way. We will provide them with service that willmake you look good for the referral.

C. Daniel DeLawderChairman

David L. TrautmanPresident


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F I N A N C I A L H I G H L I G H T S

Percent(In thousands, except per share data) 2010 2009 Change

Earnings:Total interest income $ 345,517 $ 367,690 –6.03%

Total interest expense 71,473 94,199 –24.13%

Net interest income 274,044 273,491 0.20%

Net income available to common shareholders (x) 68,410 68,430 –0.03%

Per Share:Net income per common share – basic (x) 4.51 4.82 –6.43%

Net income per common share – diluted (x) 4.51 4.82 –6.43%

Cash dividends declared 3.76 3.76 —

Common book value (end of period) 42.12 41.71 0.98%

At Year-End:Total assets $7,298,377 $7,040,329 3.67%

Deposits 5,095,420 5,188,052 –1.79%

Loans 4,732,685 4,640,432 1.99%

Investment securities 2,039,791 1,863,560 9.46%

Total borrowings 1,375,652 1,053,850 30.54%

Total stockholders’ equity 745,824 717,264 3.98%

Ratios:Return on average common equity (x) 10.53% 11.81% —

Return on average assets (x) 0.97% 0.97% —

Texas ratio (a) 48.76% 44.18% —

Efficiency ratio 54.75% 54.01% —

(x) Reported measure uses net income available to common shareholders. Net income available to common shareholders is calculated as net income less preferred stock dividends and accretion, associated with the preferred stock issued to the U.S. Treasury under the Capital Purchase Program.

(a) Reported measure is calculated as nonperforming assets divided by the sum of tangible common equityplus the allowance for loan losses. Tangible common equity equals stockholders’ equity less preferredstock and goodwill and other intangibles, in each case at the end of the period.

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STOCK LISTING:

NYSE Amex Symbol – PRKCUSIP #700658107

GENERAL STOCKHOLDER INQUIRIES:

Park National CorporationDavid L. Trautman, Secretary50 North Third StreetPost Office Box 3500Newark, Ohio 43058-3500740/349-3927

DIVIDEND REINVESTMENT PLAN:

The Corporation offers a plan whereby participating stockholders can purchase additionalshares of Park National Corporation common stock through automatic reinvestment of theirregular quarterly cash dividends. All commissions and fees connected with the purchase and safekeeping of the shares are paid by the Corporation. Details of the plan and an enrollmentcard can be obtained by contacting the Corporation’s Stock Transfer Agent and Registrar asindicated below.

DIRECT DEPOSIT OF DIVIDENDS:

The Corporation’s stockholders may have their dividend payments directly deposited intotheir checking, savings or money market account. This direct deposit of dividends is free forall stock holders. If you have any questions or need an enrollment form, please contact theCorporation’s Stock Transfer Agent and Registrar as indicated below.

STOCK TRANSFER AGENT AND REGISTRAR:

First-Knox National Bank, Division of The Park National BankPost Office Box 1270One South Main StreetMount Vernon, Ohio 43050-1270800/837-5266 Ext. 5208

FORM 10-K:

All forms filed by the Corporation with the SEC (including our Form 10-K for 2010) areavailable on our website by clicking on the Documents /SEC Filings section of the InvestorRelations page. These forms may also be obtained, without charge, by contacting the Secretary as indicated above.

INTERNET ADDRESS:

www.parknationalcorp.com

E-MAIL:

David L. [email protected]

S T O C K H O L D E R S ’ I N F O R M A T I O N

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Total Banking Offices: 141Total ATMs: 171Total Financial Service Centers: 149 Asset Size: $7.3 BillionHeadquarters: Newark, OhioNYSE Amex: PRKWebsite: ParkNationalCorp.com

Total Banking Offices: 141Total ATMs: 171

Maureen H. BuchwaldOwner, Glen Hill

Orchards, LLC

James J. CullersSole Proprietor, Mediation and

Arbitration Services


Harry O. EggerVice Chairman

F.W. Englefield, IVPresident,

Englefield, Inc.

Stephen J. KambeitzPresident and CFO,

RC Olmstead

John W. KozakChief Financial Officer

William T. McConnellChairman of the

Executive Committee

Timothy S. McLainVice President,

McLain, Hill, Rugg & Associates Inc.

John J. O’NeillChairman,

Southgate Corporation

William A. PhillipsChairman,

Century National Bank

Rick R. TaylorPresident,

Jay Industries, Inc.


Sarah R. WallaceChairman of the

Board, First Federal Savings and Loan

Association of Newark

Lee ZazworskyPresident, Mid State

Systems, Inc.

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Main Office - Zanesville14 South Fifth StreetPost Office Box 1515Zanesville, Ohio 43702-1515

Athens*898 East State StreetAthens, Ohio 45701-2115

Coshocton**100 Downtowner PlazaCoshocton, Ohio 43812-1921

Dresden*91 West Dave Longaberger AvenueDresden, Ohio 43821-9726

Logan*61 North Market StreetLogan, Ohio 43138

New Concord*1 West Main StreetNew Concord, Ohio 43762-1218

New Lexington*206 North Main StreetNew Lexington, Ohio 43764-1263

Newcomerstown*220 East State StreetNewcomerstown, Ohio 43832

Zanesville - Consumer Lending and Collections Center33 South Fifth StreetZanesville, Ohio 43701

Zanesville - East*1705 East PikeZanesville, Ohio 43701-6601

Zanesville - Kroger*3387 Maple AvenueZanesville, Ohio 43701

Zanesville - Lending Center*505 Market StreetZanesville, Ohio 43701

Zanesville - North*1201 Brandywine BoulevardZanesville, Ohio 43701-1086

Zanesville - North Military*990 Military RoadZanesville, Ohio 43701

Zanesville - South*2127 Maysville AvenueZanesville, Ohio 43701-5748

Zanesville - South Maysville*2810 Maysville PikeZanesville, Ohio 43701

Off-Site ATM LocationsZanesville - Genesis HealthCare System Bethesda Campus2951 Maple Avenue

Zanesville - Genesis HealthCare System Good Samaritan Campus800 Forest Avenue

*Includes Automated Teller Machine**Includes Automated Teller Machine Drive-up and Walk-up

Offices: 15 ATMs: 17 Website: CenturyNationalBank.comPresident: Thomas M. LyallCounties Served: Athens, Coshocton, Hocking, Muskingum, Perry, Tuscarawas

Top Row: Michael L. Bennett - The Longaberger Company; Ronald A. Bucci - Stoneware Properties and General Graphics Co. Inc.; Ward D. Coffman, III - Coffman Law Offices; Robert D. Goodrich, II - Retired, Wendy’s Management Group, Inc.; Patrick L. Hennessey - P&D Transportation, Inc.; Robert D. Kessler - Kessler Sign Company; Henry C. Littick, II - Southeastern Ohio Broadcasting Systems, Inc.Bottom Row: Thomas M. Lyall - President; Timothy S. McLain, CPA - McLain, Hill, Rugg and Associates, Inc.; Don R. Parkhill - Jacobs, Vanaman Agency, Inc.; William A. Phillips - Chairman; James L. Shipley - Miller-Lynn Insurance Service and Smith-Brogan Insurance Agency; Thomas L. Sieber - Retired, Hospital Administrator; Dr. Anne C. Steele - Muskingum University; Dr. Robert J. Thompson - Neurological Associates of Southeastern Ohio, Inc.

Offices: 15 ATMs: 17Website: CenturyNationalBank.com

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Main Office - Lancaster143 West Main StreetPost Office Box 607Lancaster, Ohio 43130-0607

Main Office Drive-Thru*150 West Wheeling StreetLancaster, Ohio 43130-3707

Baltimore*1301 West Market StreetBaltimore, Ohio 43105-1044

Canal Winchester - Kroger*6095 Gender RoadCanal Winchester, Ohio 43110

Lancaster - East Main*1001 East Main StreetLancaster, Ohio 43130

Lancaster - East Main Street - Kroger*1141 East Main StreetPost Office Box 607Lancaster, Ohio 43130-0607

Lancaster - Meijer*2900 Columbus-Lancaster RoadPost Office Box 607Lancaster, Ohio 43130-0607

Lancaster - Memorial Drive*1280 North Memorial DrivePost Office Box 607Lancaster, Ohio 43130-0607

Lancaster - Memorial Drive - Kroger*1735 North Memorial DriveLancaster, Ohio 43130-0607

Lancaster - West Fair*1001 West Fair AvenueLancaster, Ohio 43130

Pickerington - Central - Kroger*1045 Hill Road NorthPickerington, Ohio 43147

Pickerington - North - Kroger**7833 Refugee Road NWPickerington, Ohio 43147

Reynoldsburg - Slate Ridge*1988 Baltimore-Reynoldsburg Road (Route 256)Reynoldsburg, Ohio 43068

Off-Site ATM LocationsLancaster - Fairfield Medical Center (2)401 North Ewing Street

Lancaster - Ohio University - Lancaster1570 Granville Pike

Lancaster - River View Surgery Center2401 North Columbus Street

*Includes Automated Teller Machine**Includes Automated Teller Machine Drive-up and Inside

Offices: 12 ATMs: 17 Website: FairfieldNationalBank.comPresident: Stephen G. WellsCounties Served: Fairfield, Franklin

Charles P. Bird, Ph.D. - Retired, Ohio University; Leonard F. Gorsuch - Fairfield Homes, Inc.; Eleanor V. Hood - The Lancaster Festival; Jonathan W. Nusbaum, M.D. - Retired, Surgeon; S. Alan Risch - Risch Drug Stores, Inc.; Mina H. Ubbing - Fairfield Medical Center; Paul Van Camp - P.V.C. Limited; Stephen G. Wells - President

Offices: 12 ATMs: 17Website: FairfieldNationalBank.com

10

Main Office - Loudonville*120 North Water StreetPost Office Box 179Loudonville, Ohio 44842-0179

Ashland*1161 East Main StreetAshland, Ohio 44805-2831

Perrysville*112 North Bridge StreetPost Office Box 156Perrysville, Ohio 44864-0156

Off-Site ATM LocationLoudonville - Stake’s Short Stop3052 State Route 3

*Includes Automated Teller Machine

Offices: 3 ATMs: 4 Website: FarmersandSavings.comPresident: James S. LingenfelterCounty Served: Ashland

Patricia A. Byerly - Retired, Byerly-Lindsey Funeral Home; Timothy R. Cowen - Cowen Truck Line, Inc.; James S. Lingenfelter - President; Roger E. Stitzlein - Loudonville Farmers Equity; Chris D. Tuttle - Amish Oak Furniture Company, Inc.; Gordon E. Yance - First-Knox National Bank

Offices: 3 ATMs: 4Website: FarmersandSavings.com

11

Main Office - Mount VernonOne South Main StreetPost Office Box 1270Mount Vernon, Ohio 43050-1270

Bellville*154 Main StreetBellville, Ohio 44813-1237

Centerburg*35 West Main Street, Drawer FCenterburg, Ohio 43011-0806

Danville*4 South Market StreetPost Office Box 29Danville, Ohio 43014-0029

Fredericktown*137 North Main StreetFredericktown, Ohio 43019-1109

Millersburg*225 North Clay StreetMillersburg, Ohio 44654-1302

Millersburg - Walmart*1640 South Washington StreetMillersburg, Ohio 44654-8901

Mount Gilead17 West High StreetMount Gilead, Ohio 43338-1212

Mount Gilead - Edison*504 West High StreetMount Gilead, Ohio 43338-1004

Mount Vernon - Blackjack Road*8641 Blackjack RoadMount Vernon, Ohio 43050-9051

Mount Vernon - Coshocton Avenue*810 Coshocton AvenueMount Vernon, Ohio 43050-1931

Mount Vernon - Operations Center105 West Vine StreetPost Office Box 1270Mount Vernon, Ohio 43050-1270

Off-Site ATM LocationsFredericktown - Fast Freddies89 South Main Street

Gambier - Kenyon College Bookstore106 Gaskin Avenue

Howard - Apple Valley21973 Coshocton Road

Mount Gilead - ATD Enterprises Marathon6154 State Route 95

Mount Gilead - Morrow County Hospital651 West Marion Road

Mount Vernon - Colonial City Lanes110 Mount Vernon Avenue

Mount Vernon - Knox Community Hospital1330 Coshocton Road

Mount Vernon - Mount Vernon Nazarene University800 Martinsburg Road

Mount Vernon 11 West Vine Street


Offices: 11 ATMs: 18 Website: FirstKnox.comPresident: Gordon E. YanceCounties Served: Holmes, Knox, Morrow, Southern Richland

Top Row: Maureen Buchwald - Glen Hill Orchards, LLC; James J. Cullers - Mediation and Arbitration Services; Ronald J. Hawk - Danville Feed and Supply, Inc.; William B. Levering - Levering Management, Inc.; Daniel L. Mathie - Critchfield, Critchfield & Johnston, Ltd.Bottom Row: Noel C. Parrish - NOE, Inc.; Mark R. Ramser - Ohio Cumberland Gas Co.; Vickie A. Sant - Executive Vice President; R. Daniel Snyder - Retired Director, Snyder Funeral Homes, Inc.; Roger E. Stitzlein - Loudonville Farmers Equity; Gordon E. Yance - President

Offices: 11 ATMs: 18Website: FirstKnox.com

12

Main Office - Newark*50 North Third StreetPost Office Box 3500Newark, Ohio 43058-3500

Columbus140 East Town Street, Suite 1400Columbus, Ohio 43215

Gahanna - Kroger*1365 Stoneridge DriveGahanna, Ohio 43230

Granville*119 East BroadwayGranville, Ohio 43023

Heath - Southgate*567 Hebron RoadHeath, Ohio 43056

Heath - 30th Street*800 South 30th StreetHeath, Ohio 43056

Hebron*103 East Main StreetPost Office Box 268Hebron, Ohio 43025-0268

Johnstown*60 West Coshocton StreetPost Office Box 446Johnstown, Ohio 43031-0446

Kirkersville177 East Main StreetPost Office Box 38Kirkersville, Ohio 43033-0038

Newark - Deo Drive - Kroger*245 Deo Drive, Suite APost Office Box 3500Newark, Ohio 43058-3500

Newark - Dugway*1495 Granville RoadNewark, Ohio 43055

Newark - Eastland*1008 East Main StreetNewark, Ohio 43055

Newark - McMillen*1633 West Main StreetNewark, Ohio 43055

Newark - 21st Street*990 North 21st StreetNewark, Ohio 43055

Pataskala - Kroger**350 East Broad StreetPataskala, Ohio 43062

Reynoldsburg - Kroger*8460 Main StreetReynoldsburg, Ohio 43068

Utica*33 South Main StreetPost Office Box 486Utica, Ohio 43080-0486

Worthington*7140 North High StreetWorthington, Ohio 43085

Operations Centers21 South First Street* and 22 South First StreetPost Office Box 3500Newark, Ohio 43058-3500

Off-Site ATM LocationsGranville - Denison University Slayter Hall

Granville -Kendal at Granville 2158 Columbus Road

Hebron - Kroger600 East Main Street

Newark - Licking Memorial Hospital1320 West Main Street

Newark - OSU-N/COTC1179 University Drive

Reynoldsburg - Kroger6962 East Main Street*Includes Automated Teller Machine**Includes Automated Teller Machine Drive-up and Inside

Offices: 18 ATMs: 24 Website: ParkNationalBank.comChairman: C. Daniel DeLawderPresident: David L. TrautmanCounties Served: Franklin, Licking

Top Row: Donna M. Alvarado - AGUILA International; C. Daniel DeLawder - Chairman; F.W. Englefield IV - Englefield, Inc.; Stephen J. Kambietz - RC Olmstead; John W. Kozak - Chief Financial Officer; William T. McConnell - Chairman of the Executive CommitteeBottom Row: Dr. Charles Noble, Sr. - Shiloh Missionary Baptist Church; John J. O’Neill - Southgate Corporation; Robert E. O’Neill - Southgate Corporation; J. Gilbert Reese - Director Emeritus; David L. Trautman - President; Sarah R. Wallace - First Federal Savings; Lee Zazworsky - Mid State Systems, Inc.

Offices: 18 ATMs: 24Website: ParkNationalBank.com

13

Main Office - West Chester*8366 Princeton-Glendale RoadPost Office Box 1130West Chester, Ohio 45071-1130

Amelia - Main Street*5 West Main StreetAmelia, Ohio 45102

Amelia - Ohio Pike*1187 Ohio PikeAmelia, Ohio 45102

Anderson*1075 Nimitzview DriveCincinnati, Ohio 45230

Eastgate*4550 Eastgate BoulevardCincinnati, Ohio 45245

Florence600 Meijer Drive, Suite 303Florence, Kentucky 41042

Milford*25 Main StreetMilford, Ohio 45150

New Richmond100 Western AvenueNew Richmond, Ohio 45157

Owensville*5100 State Route 132Owensville, Ohio 45160

Springboro*720 Gardner RoadSpringboro, Ohio 45066

Off-Site ATM LocationNew Richmond - Berry Pharmacy1041 Old US 52


Offices: 10 ATMs: 9 Website: BankWithPark.comCounties Served: Boone (KY), Butler, Clermont, Hamilton, Warren

Nicholas L. Berning - Retired, Berning Financial Consulting; Thomas J. Button - The Park National Bank; Daniel L. Earley - Retired President, Chairman; Martin J. Grunder, Jr. - Grunder Landscaping Co.; Richard W. Holmes - Retired, PricewaterhouseCoopers LLP; Larry H. Maxey - Synchronic Business Solutions

Offices: 10 ATMs: 9Website: BankWithPark.com

14

Main Office - Mansfield*3 North Main StreetPost Office Box 355Mansfield, Ohio 44901-0355

Butler*85 Main StreetButler, Ohio 44822-9618

Lexington*276 East Main StreetLexington, Ohio 44904-1300

Mansfield - Ashland Road*797 Ashland RoadMansfield, Ohio 44905-2075

Mansfield - Cook Road*460 West Cook RoadMansfield, Ohio 44907-2395

Mansfield - Lexington Avenue - Kroger*1500 Lexington AvenueMansfield, Ohio 44907

Mansfield - Madison - Kroger*1060 Ashland RoadMansfield, Ohio 44905-8797

Mansfield - Marion Avenue*50 Marion AvenueMansfield, Ohio 44903-2302

Mansfield - Springmill*889 North Trimble RoadMansfield, Ohio 44906-2009

Mansfield - West Park*1255 Park Avenue WestMansfield, Ohio 44906-2810

Ontario*325 North Lexington-Springmill RoadOntario, Ohio 44906-1218

Shelby - Mansfield Avenue*155 Mansfield AvenueShelby, Ohio 44875-1832

Off-Site ATM LocationsMansfield - Kroger1240 Park Avenue West

State Route 13 and I-7125 West Hanley Road

Mansfield - StarTek, Inc.850 West Fourth Street


Offices: 12 ATMs: 15Website: RichlandBank.comPresident: David J. GoochCounty Served: Richland

Top Row: Ronald L. Adams - Retired, DAI Emulsions, Inc.; Mark Breitinger - Milark Industries; Michael L. Chambers - J&B Acoustical; Benjamin A. Goldman - Retired, Superior Building Services

Bottom Row: David J. Gooch - President; Timothy J. Lehman - Chairman of the Board; Grant E. Milliron - Milliron Industries; Shirley Monica - S.S.M. Inc.; Linda H. Smith - Ashwood LLC; Rick R. Taylor - Jay Industries, Inc.

Offices: 12 ATMs: 15Website: RichlandBank.com

15

Mansfield - McDonalds Restaurant

Main Office - Greenville499 South BroadwayPost Office Box 130Greenville, Ohio 45331-0130

Arcanum - Downtown1 West George StreetArcanum, Ohio 45304

Arcanum - North*603 North Main StreetArcanum, Ohio 45304

Ft. Recovery*117 North Wayne StreetFt. Recovery, Ohio 45846

Greenville - North*1302 Wagner AvenueGreenville, Ohio 45331

Greenville - SouthLocated inside the Brethren Retirement Community750 Chestnut StreetGreenville, Ohio 45331

Greenville - Third and Walnut*175 East Third StreetGreenville, Ohio 45331

Greenville - Walmart*1501 Wagner AvenueGreenville, Ohio 45331

Versailles*101 West Main StreetVersailles, Ohio 45380

Off-Site ATM LocationsGreenville - Whirlpool Corporation1701 KitchenAid Way


Offices: 9 ATMs: 7 Website: SecondNational.comPresident: John E. SwallowCounties Served: Darke, Mercer

Tyeis Baker-Baumann - Rebsco, Inc.; Wayne G. Deschambeau - Wayne HealthCare; Neil J. Diller - Cooper Farms, Inc.; Jeffrey E. Hittle - Hittle Buick GMC, Inc.; Wesley M. Jetter - Ft. Recovery Industries; Marvin J. Stammen - Retired President, Second National Bank; John E. Swallow - President

Offices: 9 ATMs: 7Website: SecondNational.com

16

Main Office - Springfield*40 South Limestone StreetSpringfield, Ohio 45502

Beavercreek - Lending Center1427 Research Park DriveBeavercreek, Ohio 45410

Enon*3680 Marion DriveEnon, Ohio 45323

Jamestown*82 West Washington StreetJamestown, Ohio 45335

Jeffersonville*2 South Main StreetJeffersonville, Ohio 43128

Mechanicsburg*2 South Main StreetMechanicsburg, Ohio 43044

Medway*130 West Main StreetMedway, Ohio 45341

New Carlisle*201 North Main StreetNew Carlisle, Ohio 45344

New Carlisle - Park Layne*2035 South Dayton-Lakeview RoadNew Carlisle, Ohio 45344

North Lewisburg*8 West Maple StreetNorth Lewisburg, Ohio 43060

Plain City105 West Main StreetPlain City, Ohio 43064

South Charleston*102 South Chillicothe StreetSouth Charleston, Ohio 45368

Springfield - Derr Road - Kroger*2989 Derr RoadSpringfield, Ohio 45503

Springfield - East Main*2730 East Main StreetSpringfield, Ohio 45503

Springfield - North Limestone*1756 North Limestone StreetSpringfield, Ohio 45503

Springfield - Northridge*1600 Moorefield RoadSpringfield, Ohio 45503

Springfield - Western*920 West Main StreetSpringfield, Ohio 45504

Urbana*1 Monument SquareUrbana, Ohio 43078

Urbana - Scioto Street*828 Scioto StreetUrbana, Ohio 43078

Xenia Downtown*161 East Main StreetXenia, Ohio 45385

Xenia Plaza*82 North Allison AvenueXenia, Ohio 45385

Off-Site ATM LocationsPlain City - Shell440 South Jefferson Street

Springfield2051 North Bechtle Avenue

Springfield - Clark State Community College570 East Leffel Lane

Springfield - Wittenberg University - Student Center738 Woodlawn Avenue

Springfield - Wittenberg University - HPER Center250 Bill Edwards Drive

Urbana - Champaign CountyCommunity Center1512 South US Highway 68

Yellow Springs - Young’s Jersey Dairy6880 Springfield-Xenia Road


Offices: 21 ATMs: 26 Website: SecurityNationalBank.comPresident: William C. FralickCounties Served: Champaign, Clark, Fayette, Greene, Madison

Top Row: R. Andrew Bell - Consolidated Insurance Company; Rick D. Cole - Colepak, Inc.; Harry O. Egger - Chairman, Retired President; William C. Fralick - President

Bottom Row: Larry E. Kaffenbarger - Kaffenbarger Truck Equipment Company; Thomas P. Loftis - Midland Properties, Inc.; Scott D. Michael - Michael Farms, Inc.; Dr. Karen E. Rafinski - Clark State Community College; Chester L. Walthall - Heat-Treating, Inc.; Robert A. Warren - Hauck Bros., Inc.

Offices: 21 ATMs: 26Website: SecurityNationalBank.com

17

Main Office - Bucyrus*401 South Sandusky AvenuePost Office Box 568Bucyrus, Ohio 44820

Caledonia*140 East Marion StreetCaledonia, Ohio 43314

Crestline*245 North Seltzer StreetPost Office Box 186Crestline, Ohio 44827-0186

Galion*8 Public SquareGalion, Ohio 44833

Marion - Barks Road*129 Barks Road EastMarion, Ohio 43302

Marion - Walmart Super Center*1546 Marion-Mt. Gilead RoadMarion, Ohio 43302

Prospect*105 North Main StreetProspect, Ohio 43342

Off-Site ATM LocationBucyrus - East Pointe Shopping Center211 Stetzer Road South


Offices: 7 ATMs: 8 Website: UnitedBankOhio.comPresident: Donald R. StoneCounties Served: Crawford, Marion

Lois J. Fisher - Lois J. Fisher & Assoc.; Michele McElligott - Pigman, Brown, McElligott Ltd.; Kenneth A. Parr, Jr. - Parr Insurance Agency, Inc.; Douglas M. Schilling - Schilling Graphics, Inc.; Donald R. Stone - President; Douglas Wilson - Owner, Doug’s Toggery Realtor, Craig A. Miley Realty & Auction, Ltd.

Offices: 7 ATMs: 8Website: UnitedBankOhio.com

18

Main Office - Piqua*215 North Wayne StreetPiqua, Ohio 45356

Administrative Office - Piqua212 North Main StreetPost Office Box 913Piqua, Ohio 45356

Piqua - Sunset*1603 Covington AvenuePiqua, Ohio 45356

Piqua - Walmart*1300 East Ash StreetPiqua, Ohio 45356

Tipp City*1176 West Main StreetTipp City, Ohio 45371

Troy1314 West Main StreetTroy, Ohio 45373

Troy - Walmart*1801 West Main StreetTroy, Ohio 45373

Off-Site ATM LocationTroy - Upper Valley Medical Center3130 North Dixie Highway


Offices: 6 ATMs: 6 Website: UnityNationalBk.comPresident: John A. BrownCounty Served: Miami

Dr. Richard N. Adams - Representative of Ohio General Assembly; Tamara Baird-Ganley - Baird Funeral Home; Michael C. Bardo - Hartzell Industries, Inc.; John A. Brown - President; Thomas E. Dysinger - Dysinger & Associates, LLC; Dr. Douglas D. Hulme - Oakview Veterinary Hospital; Timothy Johnston - Self-employed Consultant; W. Samuel Robinson - Murray, Wells, Wendeln & Robinson CPAs, Inc.

Offices: 6 ATMs: 6Website: UnityNationalBk.com

19

Main Office - Gulf Shores*2201 West First StreetPost Office Box 4649Gulf Shores, Alabama 36547

Daphne*28720 US Highway 98Post Office Box 1144Daphne, Alabama 36526

Elberta*24989 State StreetPost Office Box 337Elberta, Alabama 36530

Fairhope*218 North Greeno RoadPost Office Box 1786Fairhope, Alabama 36533

Foley*501 South McKenzie StreetFoley, Alabama 36535

Orange Beach*25051 Canal RoadPost Office Box 919Orange Beach, Alabama 36561

Point Clear*17008 Scenic Highway 98Post Office Box 1347Point Clear, Alabama 36564

Robertsdale22245-3A Highway 59Post Office Box 606Robertsdale, Alabama 36567

Off-Site ATM LocationsFoley - McDonald’s1010 South McKenzie Street

Orange Beach - Sam’s27123 Canal Road

Point Clear - Grand HotelOne Grand Boulevard

Saraland - Microtel Inns & Suites1124 Shelton Beach Road


Offices: 8 ATMs: 11 Website: VisionBank.netChairman: Joey W. GinnPresident: Diane AndersonCounty Served: Baldwin

Top Row: Gordon Barnhill - Barnhill Land & Real Estate; Brett Baumeister - Vision Bank; B.J. Blanchard - Real Estate Developer; C. Daniel DeLawder - Park National Corporation; Charles J. Ebert, III - Ebert Insurance Agency; Joey W. Ginn - Chairman

Bottom Row: Kevin Leeser, CPA - O’Sullivan Creel, LLP; Henry N. Lyda, III - Retired, University of Alabama; Robert S. McKean - Retired President, Vision Bank Alabama; Christopher S. McManus D.M.D. - Baldwin County Endodontics, PC; Katharine A. Monroe - Wells Fargo Advisors; James R. Owen, Jr. - Gulf Shores Title Co., Inc.; Clark J. Stewart - Stewart Broadcasting, Inc.

Offices: 8 ATMs: 11Website: VisionBank.net

20

Main Office - Panama City*2200 Stanford RoadPanama City, Florida 32405

Destin1021 Highway 98 East, Suite ADestin, Florida 32541

Navarre*8524 Navarre ParkwayNavarre, Florida 32566

Panama City Beach*16901 Panama City Beach ParkwayPanama City Beach, Florida 32413

Panama City Beach - Edgewater*559 Richard Jackson BoulevardPanama City Beach, Florida 32407

Port St. Joe*529 Cecil G Costin, Sr. BoulevardPort St. Joe, Florida 32456

St. Joe Beach*8134 West Highway 98Port St. Joe Beach, Florida 32456

Santa Rosa Beach*1598 South County Highway 393, Suite 106Santa Rosa Beach, Florida 32459

Wewahitchka*125 North Highway 71Wewahitchka, Florida 32465

Off-Site ATM LocationWewahitchka - Rich’s IGA201 West River Road


Offices: 9 ATMs: 9 Website: VisionBank.netChairman: Joey W. GinnPresident: John D. WhitlockCounty Served: Bay, Gulf, Okaloosa, Santa Rosa, Walton

Top Row: Dr. James D. Campbell, Sr. - James D. Campbell, D.D.S., M.S.; William A. Cathey - Cathey’s Hardware; C. Daniel DeLawder - Park National Corporation; Joey W. Ginn - Chairman; Patrick Koehnemann - Koehnemann Construction, Inc.; Lana Jane Lewis-Brent - Paul Brent Designer, Inc.

Bottom Row: Robert S. McKean - Retired President, Vision Bank Alabama; Jimmy Patronis, Jr. - Captain Anderson’s Restaurant; Jack B. Prescott - Retired, Smurfitt-Stone Container; John S. Robbins - Vision Bank; Jerry F. Sowell, Jr., CPA - Segers, Sowell, Stewart, Johnson & Brill, PA; Dr. James Strohmenger - Bay Radiology Associates; Kim Styles-DiBacco - Styles Designs

Offices: 9 ATMs: 9Website: VisionBank.net

21

William A. PhillipsChairman

Thomas M. LyallPresident

Patrick L. NashExecutive Vice President

James C. BlytheSenior Vice President

Barbara A. GibbsSenior Vice President

Michael F. WhitemanSenior Vice President

Brian E. HallVice President

Janice A. HutchisonVice President

John W. ImesVice President

Jeffrey C. JordanVice President

Brian G. KaufmanVice President

Bruce D. KolopajloVice President

Mark A. LongstrethVice President

James R. MerryVice President

Rebecca R. PorteusVice President

Jody D. SpencerVice President and Trust Officer

Thomas N. SulensVice President

Joseph P. AllenAssistant Vice President

Ann M. GildowAssistant Vice President

Theresa M. GilliganAssistant Vice President

Susan A. LasureAssistant Vice President

Karen D. LoweAssistant Vice President

Terri L. SidwellAssistant Vice President

Cynthia J. SniderAssistant Vice President

Stephen A. HarenBanking Officer

Diana F. McCloyBanking Officer

Rebecca A. PalmertonBanking Officer

Jodi C. PagathBanking Officer

Amy M. PinsonBanking Officer

Jesse M. RollinsBanking Officer

Douglas J. WellsBanking Officer

Molly J. AllenAdministrative Officer

Katherine M. BarclayAdministrative Officer and Trust Officer

Amber M. GibsonAdministrative Officer

Noelle K. JarrettAdministrative Officer

Paula L. MeadowsAdministrative Officer

Saundra W. PritchardAdministrative Officer

Emila S. SmithAdministrative Officer

Beth A. StillwellAdministrative Officer

Susan L. SummersAdministrative Officer

Deloris A. TomAdministrative Officer


Harry O. EggerVice Chairman

John W. KozakChief Financial Officer

William T. McConnellChairman of the Executive Committee


Stephen G. WellsPresident

Timothy D. HallSenior Vice President

Richard E. BakerVice President

Daniel R. BatesVice President

Linda M. HarrisVice President

Laura F. TussingVice President and Trust Officer

Sabrena L. McClureAssistant Vice President

Scott A. ReedAssistant Vice President

Sandra S. UhlAssistant Vice President

Molly S. BatesBanking Officer

Linda B. BochBanking Officer

Janet K. CochenourBanking Officer

Tara L. CraaybeekBanking Officer

Melissa J. McMullenBanking Officer

Michael D. MitchellBanking Officer

Cynthia A. MooreBanking Officer

Trudy M. ReebBanking Officer

Mareion A. RoysterBanking Officer and Trust Officer

Kim I. SheldonBanking Officer

Tina L. TaleyBanking Officer22

Park National Corporation

Century National Bank

Fairfield National Bank

Officer Listing

189323_text_08_29.indd 15 2/24/11 2:45 PM

James S. LingenfelterPresident

Kenneth G. GoscheSenior Vice President

Sharon E. BlubaughVice President

Hal D. SheafferVice President

Wayne D. YoungVice President

Gregory A. HenleyAssistant Vice President

Barbara J. YoungAssistant Vice President

Todd A. GerenBanking Officer

Brian R. HinkleBanking Officer

Michael C. BandyAdministrative Officer and Trust Officer

Ronald D. FlowersAdministrative Officer

Gordon E. YancePresident

Vickie A. SantExecutive Vice President

Mark P. LeonardSenior Vice President

W. Douglas LeonardSenior Vice President

Robert E. BossVice President

Cheri L. ButcherVice President and Trust Officer

Cynthia L. HiggsVice President

Julie A. LeonardVice President

Jesse L. MarlowVice President

Jerry D. SimonVice President

Todd P. VermilyaVice President

Barbara A. BarryAssistant Vice President

Deborah S. DoveAssistant Vice President

James W. HobsonAssistant Vice President

Debra E. HolidayAssistant Vice President

R. Edward KlineAssistant Vice President

Gregory M. RoyAssistant Vice President

Joan M. StoutAssistant Vice President

Mark D. BlanchardBanking Officer

Heather A. BrayshawBanking Officer

Phyllis D. ColopyBanking Officer

Rachelle E. DallasBanking Officer

Wendi M. FowlerBanking Officer and Trust Officer

Patti J. FrazeeBanking Officer

James S. MeyerBanking Officer

Sherry L. SnyderBanking Officer

Rea D. WirtBanking Officer

Dusty C. AuAdministrative Officer

Nicholas R. BlanchardAdministrative Officer

Robert T. BrookeAdministrative Officer

Deborah J. DanielsAdministrative Officer

Lance E. DillAdministrative Officer

Todd M. HawkinsAdministrative Officer

Monica L. HillerAdministrative Officer

Kassandra L. HoeflichAdministrative Officer

Dave E. HumphreyAdministrative Officer

Erin C. KeltyAdministrative Officer

Jeffrey A. KinneyAdministrative Officer

Carol A. LewisAdministrative Officer

Mary A. LoydAdministrative Officer

Nicole L. MackAdministrative Officer

Paulina S. McQuiggAdministrative Officer

Heather N. WileyBanking Officer

Jamey L. BinkleyAdministrative Officer

Donna K. BruceAdministrative Officer

Grace R. ClineAdministrative Officer

Andrew J. ConnellAdministrative Officer

Daniel J. FawcettAdministrative Officer

Sean P. MurnaneAdministrative Officer

Jason A. SaulAdministrative Officer

Allison G. SpanglerAdministrative Officer

Loretta J. SwyersAdministrative Officer

Fairfield National Bank (continued)

Farmers and Savings Bank

First-Knox National Bank

Officer Listing

23

Officer Listing

189323_text_08_29.indd 16 2/24/11 2:45 PM



William T. McConnellChairman of the Executive Committee

Thomas J. ButtonSenior Vice President

Thomas M. CummiskeySenior Vice President and Trust Officer

Lynn B. FawcettSenior Vice President

John W. KozakSenior Vice President and Chief Financial Officer

Timothy J. LehmanSenior Vice President

Laura B. LewisSenior Vice President

Cheryl L. SnyderSenior Vice President

Jeffrey A. WilsonSenior Vice President and Auditor

William R. WilsonSenior Vice President

Edward L. BradyVice President

Alice M. BrowningVice President

Brady T. BurtVice President

James M. BuskirkVice President andTrust Officer

Peter G. CassanosVice President

Cynthia H. CraneVice President

Kathleen O. CrowleyVice President and Auditor

Joan L. FranksVice President

John S. GardVice President andTrust Officer

Jeffrey C. GluntzVice President

Scott C. GreenVice President

Damon P. HowarthVice President andTrust Officer

Daniel L. HuntVice President

Steven J. KleinVice President

Teresa M. KrollVice President and Trust Officer

Carl H. MayerVice President

Lydia E. MillerVice President

Matthew R. MillerVice President

Terry C. MyersVice President and Trust Officer

Gregory M. RhoadsVice President

Karen K. RiceVice President

David J. RohdeVice President

David F. RomesVice President

Ralph H. Root IIIVice President

Alan C. RothweilerVice President

Christine S. SchneiderVice President

Michael R. ShannonVice President

Robert G. SpringerVice President

Robin L. SteinVice President

Julie L. StrohackerVice President and Trust Officer

Adam T. StypulaVice President

Erin E. TschanenVice President

Daniel H. TurbenVice President

Paul E. TurnerVice President

Stanley A. UchidaVice President

John B. UibleVice President and Trust Officer

Brian S. UrquhartVice President

Bradden E. WaltzVice President

Barbara A. WilsonVice President

Christa D. WrightVice President

Renee BakerAssistant Vice President

Brent A. BarnesAssistant Vice President and Auditor

Gail A. BlizzardAssistant Vice President

Sharon L. BolenAssistant Vice President

Rebecca A. BrownfieldAssistant Vice President

Beverly ClarkAssistant Vice President and Trust Officer

Amber L. CumminsAssistant Vice Presidentand Trust Officer

April R. DusthimerAssistant Vice President

Kelly A. EddsAssistant Vice President

Earl W. OsborneChairman

Matthew R. MarshPresident

Tracy L. MorganBanking Officer

Charles L. HarrisAdministrative Officer

Valerie J. MorganAdministrative Officer

Mary E. ParsellAdministrative Officer

24

Officer Listing

The Park National Bank

Guardian Finance Company

Officer Listing

189323_text_08_29.indd 17 2/24/11 2:45 PM

Amanda K. EvansAssistant Vice President

Catherine J. EvansAssistant Vice President

Jill S. EvansAssistant Vice President

Brenda FrakesAssistant Vice President

Judith A. FranklinAssistant Vice President

David W. HardyAssistant Vice President and Trust Officer

Louise A. HarveyAssistant Vice President

Anthony L. KendziorskiAssistant Vice President

Brenda L. KutanAssistant Vice President

Richard H. LangleyAssistant Vice President

Craig M. LarsonAssistant Vice President

Candy J. LehmanAssistant Vice President and Trust Officer

Kelly M. MaloneyAssistant Vice President

Julia E. McCormackAssistant Vice President

Michael D. McDonaldAssistant Vice President

Ronald C. McLeishAssistant Vice President

Ryan E. MillsAssistant Vice President

Jennifer L. MoreheadAssistant Vice President

Rebecca K. RodeniserAssistant Vice President

Brian E. SmithAssistant Vice President

Melinda S. SmithAssistant Vice President

Maryann ThorntonAssistant Vice President

Sandra S. TravisAssistant Vice President

Angie D. TreadwayAssistant Vice President

Berkley C. Tuggle Jr.Assistant Vice President

Monte J. VanDeusenAssistant Vice President

Scott A. VanHornAssistant Vice President

Carol S. WhetstoneAssistant Vice President and Trust Officer

Rose M. WilsonAssistant Vice President

J. Bradley ZellarAssistant Vice President and Trust Officer

Kathy L. AllenBanking Officer

Eric M. BakerBanking Officer

Thomas E. BallardBanking Officer

Dixie C. BrownBanking Officer

Danielle A.M. BurnsBanking Officer

Dirk J. DusthimerBanking Officer

Trudi L. FisherBanking Officer and IT Auditor

Kristie L. GreenTrust Officer

Teresa A. HennessyBanking Officer

Cynthia HollisBanking Officer

Alice M. KeefeBanking Officer

George C. KlepecBanking Officer

Bethany B. LewisBanking Officer

Kimberly G. McDonoughBanking Officer

Cynthia A. NeelyBanking Officer

Diane M. OberfieldBanking Officer

Sherri L. PembrookBanking Officer

Leda J. RutledgeBanking Officer

Charles F. SchultzBanking Officer

Lori B. TablerBanking Officer

Lori L. TorrensBanking Officer and Assistant Auditor

Jenny L. WardBanking Officer and Auditor

D. Bradley WilkinsBanking Officer

David B. ArmstrongAdministrative Officer

Michelle L. ArnoldAdministrative Officer

Larry M. BaileyAdministrative Officer

Patricia S. CarrAdministrative Officer

Brad G. ChanceAdministrative Officer

Nathan T. CookAdministrative Officer

Andrew J. FacklerAdministrative Officer and Assistant Auditor

Jerrod F. GambsAdministrative Officer

Bradley D. GardAdministrative Officer

Tammy L. GastAdministrative Officer

Tracy A. GrimmAdministrative Officer

Ellen P. HemplemanAdministrative Officer

Chris R. HinerAdministrative Officer

Asher D. HunterAdministrative Officer

Cynthia L. KisselAdministrative Officer

Andrew H. KnoeselAdministrative Officer

Natasha D. McKeeAdministrative Officer

Angela J. MuncieAdministrative Officer

Jeffrey A. PillowAdministrative Officer

Mark D. RidenbaughAdministrative Officer

Ruth Y. SawyerAdministrative Officer

Alice M. SchlaegelAdministrative Officer

Kathryn S. SchummAdministrative Officer

25

The Park National Bank (continued)

Officer Listing Officer Listing

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Jennifer K. FischerSenior Vice President

Michael J. JacunskiSenior Vice President

Jason D. HughesVice President

John R. NienaberVice President

Ginger L. ViningVice President

Joseph A. WagnerVice President

John F. Winkler IIVice President and Trust Officer

Peggy A. BeckettAssistant Vice President

Jay F. BerlinerAssistant Vice President

Jill A. BrewerAssistant Vice President

Kim J. CunninghamAssistant Vice President

Mary M. DemareeAssistant Vice President

James E. HysonAssistant Vice President

R. Kathy JohnsonAssistant Vice President

Louis J. PrabellAssistant Vice President

John L. SchuermannAssistant Vice President

Sam DeBonisBanking Officer

Michelle M. SandlinAdministrative Officer

Jason O. VerhoffAdministrative Officer

Cyndy H. WrightAdministrative Officer

David J. GoochPresident

Donald R. Harris Jr.Senior Vice President

Charla A. IrvinVice President and Trust Officer

Michael A. JeffersonVice President

Rebecca J. ToomeyVice President

Michael D. VolzVice President

Edward F. AdamsAssistant Vice President

Edward A. BrauchlerAssistant Vice President

Jimmy D. BurtonAssistant Vice President

Edward E. DuffeyAssistant Vice President

Susan A. FanelloAssistant Vice President

Barbara A. MillerAssistant Vice President

Jeffrey A. PartonAssistant Vice President

Sheryl L. SmithAssistant Vice President

Linda M. WhitedAssistant Vice President

John Q. ClelandBanking Officer

J. Stephen McDonaldBanking Officer andTrust Officer

Alexander M. RocksBanking Officer

Barbara L. SchoppBanking Officer

Andrew C. WaldruffBanking Officer

Carol L. DavisAdministrative Officer

Clayton J. HeroldAdministrative Officer

Janis L. HooverAdministrative Officer

Beth K. MalaskaAdministrative Officer

Kristie L. MassaAdministrative Officer

Elizabeth A. MyersAdministrative Officer

Kathleen A. SpidelAdministrative Officer

Deborah A. SweetAdministrative Officer

Jennifer L. ShanabergAdministrative Officer

Lisa E. StrangerAdministrative Officer

Ginger R. VarnerAdministrative Officer

Ronda M. WelshAdministrative Officer

Judy L. YoungAdministrative Officer

Robert N. Kent Jr.President

Charles W. SauterVice President

Linda M. StaubachAdministrative Officer

26

Officer Listing

The Park National Bank (continued)

Richland Bank

Park National Bank of Southwest Ohio & Northern Kentucky

Scope Aircraft Finance

Officer Listing

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John E. SwallowPresident

Steven C. BadgettExecutive Vice President

C. Russell BadgettVice President

Marie A. BoasVice President

D. Todd DurhamVice President and Trust Officer

Thomas J. LawsonVice President

Eric J. McKeeVice President

Gene A. RismillerVice President

Daniel G. SchmitzVice President

Kimberly A. BakerAssistant Vice President

Gerald O. BeattyAssistant Vice President

Debby J. FolkerthAssistant Vice President

Joy D. GreerAssistant Vice President

Vicki L. NeffAssistant Vice President

Cynthia J. RiffleAssistant Vice President

Alexa J. RothAssistant Vice President

Shane D. StonebrakerAssistant Vice President

Brian A. WagnerAssistant Vice President

Harvey B. Hole IIIBanking Officer

Michael R. HenryAdministrative Officer

Zachary L. NewbauerAdministrative Officer

Gregory P. SchwartzAdministrative Officer

Deborah A. SmithAdministrative Officer

William C. FralickPresident

Jeffrey A. DardingExecutive Vice President

Thomas A. GoodfellowSenior Vice President

Andrew J. IrickSenior Vice President

Timothy L. BunnellVice President

Margaret L. FoleyVice President andTrust Officer

Mary L. GoddardVice President and Trust Officer

James A. KreckmanVice President andTrust Officer

James E. LeathleyVice President

Thomas C. RuetenikVice President

David A. SnyderVice President

Michael B. WarneckeVice President

Simmie Annandale-KingAssistant Vice President

Sharon K. BoyselAssistant Vice President

Margaret A. ChapmanAssistant Vice President

Connie P. CraigAssistant Vice President

Steven B. DuelleyAssistant Vice President

Rick L. McCainAssistant Vice President

Mark B. RobertsonAssistant Vice President

Gary J. SeitzAssistant Vice President

Darlene S. WilliamsAssistant Vice President

Terri L. WyattAssistant Vice President and Trust Officer

Tamara L. AugustineTrust Officer

Teresa L. BelliveauBanking Officer

William T. EvansBanking Officer

Catherine L. HillTrust Officer

Thomas B. KeehnerBanking Officer

Patrick K. RastatterBanking Officer

Rachel M. BrewerTrust Officer

Margaret A. HorstmanAdministrative Officer

JoAnna S. JaquesAdministrative Officer

Mark D. KlinglerAdministrative Officer

Rita A. RileyAdministrative Officer

Anne M. RobinetteAdministrative Officer

27

Second National Bank

Security National Bank

Officer Listing Officer Listing

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Donald R. StonePresident

James A. CarrSenior Vice President

Anne K. SprengVice President

Scott E. BennettAssistant Vice President

Matthew E. BickertAssistant Vice President

James W. ChapmanAssistant Vice President

Floyd J. FarmerAssistant Vice President

Richard D. HancockAssistant Vice President and Trust Officer

David J. LauthersBanking Officer

James A. DeSimoneAdministrative Officer

Jennifer J. KunsAdministrative Officer

Kriste A. SlagleAdministrative Officer

John A. BrownPresident

G. Dwayne CooperVice President

Nathan E. CountsVice President

Stephen W. ValloVice President

Dean F. BrewerAssistant Vice President

James R. StubbsAssistant Vice President

Carol L. Van CulinAssistant Vice President

Vicki L. BurkeTrust Officer

Lisa L. FeeserBanking Officer

Douglas R. EakinAdministrative Officer

Kathy M. ShermanAdministrative Officer

Jonathan A. WaldoAdministrative Officer

Joey W. GinnChairman

Diane C. AndersonPresident

Brett A. BaumeisterExecutive Vice President

Christie G. BarkleySenior Vice President

Karen J. HarmonSenior Vice President

George L. HawthorneSenior Vice President

Lyndsay P. JobSenior Vice President

James E. KirklandSenior Vice President

Debra M. SchmidtSenior Vice President

Frank W. Wagner IISenior Vice President

Patricia R. BurrellVice President

Patricia H. CampbellVice President

D. Rick ConwayVice President

Robin B. FlyVice President

Bernard A. FogartyVice President

Gregory G. GontarskiVice President

Joel S. HardeeVice President

Michelle L. KinneVice President

William R. LegroneVice President

Ken N. NeymanVice President

Geneie S. ScheerVice President

Doug J. SizemoreVice President

Judy R. SmithVice President

Mark S. StejskalVice President

Elizabeth O. StoneVice President

Tracie A. SweatVice President

Rhonda L. WillisVice President

Deborah D. ArdAssistant Vice President

Lauren S. DangoAssistant Vice President

Janet J. EllisAssistant Vice President

Holly L. FloydAssistant Vice President

Joshua C. MimsAssistant Vice President

Jessica Y. MoraceAssistant Vice President

Wendy V. StacksAssistant Vice President

Alodia A. WimpeeAssistant Vice President

Michelle B. BaldwinBanking Officer

Beverly E. BillingsleyBanking Officer

Erica N. DuncanBanking Officer

Alisha N. MasonAuditor and Banking Officer

Mary Alice NeyhartBanking Officer

Cynthia M. PaulBanking Officer

Paige S. ShoemakerBanking Officer

Alina M. SmithBanking Officer

28

Officer Listing

United Bank

Unity National Bank

Vision Bank - Alabama

Officer Listing

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Joey W. GinnChairman

John D. WhitlockPresident

Jerry D. GaskinExecutive Vice President

Carolyn M. HusbandExecutive Vice President

Diane E. FloydSenior Vice President

Colleen Y. FriesenSenior Vice President

Anita M. MayerSenior Vice President

Jim P. NortonSenior Vice Presidentand Trust Officer

John S. RobbinsSenior Vice President

Scott R. RobertsonSenior Vice President

Owen W. AyersVice President

Jeremy S. BennettVice President

Bryan CampoloVice President

Joan A. CleckleyVice President

Debbie H. DriskellVice President

Jim M. HaagVice President

Laura V. HelmsVice President

Jim L. HoodVice President

Terri A. HugghinsVice President

Joe M. PelterVice President

Cindy L. StephensVice President

Leslie L. WelschVice President

Johanna L. WhiteVice President

Jennifer J. WoodsVice President

Karen P. FontaineAssistant Vice President

Chelly E. PiconeAssistant Vice President

Shawn B. PittsAssistant Vice President

Tami J. SmithAssistant Vice President

Donald S. SummersAssistant Vice President

Debbie C. ThompsonAssistant Vice President

Linda Jo ChumneyBanking Officer

Amber M. GoldenBanking Officer

Terri B. LittleBanking Officer

Katie McPartlandBanking Officer

Vision Bank - Florida

Officer Listing

189323_text_08_29.indd 22 2/24/11 2:45 PM

F I N A N C I A L R E V I E W

30

This financial review presents management’s discussion and analysis of thefinancial condition and results of operations for Park National Corporation andits subsidiaries (“Park” or the “Corporation”). This discussion should be readin conjunction with the consolidated financial statements and related notes andthe five-year summary of selected financial data. Management’s discussion andanalysis contains forward-looking statements that are provided to assist in theunderstanding of anticipated future financial performance. Forward-lookingstatements provide current expectations or forecasts of future events and arenot guarantees of future performance. The forward-looking statements arebased on management’s expectations and are subject to a number of risks and uncertainties. Although management believes that the expectations reflectedin such forward-looking statements are reasonable, actual results may differmaterially from those expressed or implied in such statements. Risks anduncertainties that could cause actual results to differ materially include, withoutlimitation: Park’s ability to execute its business plan successfully and within theexpected timeframe; deterioration in the asset value of our loan portfolio maybe worse than expected due to a number of factors, such as adverse changes in economic conditions that impair the ability of borrowers to repay their loans,the underlying collateral could prove less valuable than assumed and cash flowsmay be worse than expected; changes in general economic and financialmarket conditions, and weakening in the economy, specifically the real estatemarket and credit markets, either nationally or in the states in which Park andits subsidiaries do business, may be worse than expected which could decreasethe demand for loan, deposit and other financial services and increase loandelinquencies and defaults; the effects of the Gulf of Mexico oil spill; changes in interest rates and prices may adversely impact the value of securities, loans,deposits and other financial instruments and the interest rate sensitivity of ourconsolidated balance sheet; changes in consumer spending, borrowing andsaving habits; our liquidity requirements could be adversely affected by changesin our assets and liabilities; competitive factors among financial institutions mayincrease significantly, including product and pricing pressures and Park’s abilityto attract, develop and retain qualified bank professionals; the nature, timingand effect of changes in banking regulations or other regulatory or legislativerequirements affecting the respective businesses of Park and its subsidiaries,including changes in laws and regulations concerning taxes, accounting,banking, securities and other aspects of the financial services industry, specifically the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; the effect of fiscal and governmental policies of the United Statesfederal government; and other risk factors relating to our industry as detailedfrom time to time in Park’s reports filed with the Securities and ExchangeCommission (“SEC”) including those described in “Item 1A. Risk Factors” of Part I of Park’s Annual Report on Form 10-K for the fiscal year endedDecember 31, 2010. Undue reliance should not be placed on the forward-looking statements, which speak only as of the date of this Annual Report. Park does not undertake, and specifically disclaims any obligation, to publiclyrelease the result of any revisions that may be made to update any forward-looking statement to reflect the events or circumstances after the date on which the forward-looking statement was made, or reflect the occurrence of unanticipated events, except to the extent required by law.

ACQUISITION OF VISION BANCSHARES, INC. AND GOODWILL IMPAIRMENT CHARGES On March 9, 2007, Park acquired all of the stock and outstanding stock optionsof Vision Bancshares, Inc. (“Vision”) for $87.8 million in cash and 792,937shares of Park common stock valued at $83.3 million or $105.00 per share.The goodwill recognized was $109.0 million. The fair value of the acquiredassets of Vision was $686.5 million and the fair value of the liabilities assumedwas $624.4 million as of March 9, 2007.

At the time of the acquisition, Vision operated two bank subsidiaries (bothnamed Vision Bank) which became bank subsidiaries of Park on March 9,2007. On July 20, 2007, the bank operations of the two Vision Banks were con-solidated under a single charter through the merger of the Vision Bankheadquartered in Gulf Shores, Alabama with and into the Vision Bank headquartered in Panama City, Florida. Vision Bank operates under a Floridabanking charter and has 18 branch locations in Baldwin County, Alabama andin the panhandle of Florida. The acquisition of Vision had a significant negativeimpact on Park’s net income in 2007, 2008, 2009 and 2010.

Vision Bank began experiencing credit problems during the second half of2007 as nonperforming loans increased from $6.5 million at June 30, 2007 to$63.5 million or 9.9% of loan balances at December 31, 2007. As a result ofthese credit problems at Vision Bank, Park’s management concluded that thegoodwill of $109.0 million recorded at the time of acquisition was possiblyimpaired. A goodwill impairment analysis was completed during the fourthquarter of 2007 and the conclusion was reached that a goodwill impairmentcharge of $54.0 million be recorded at Vision Bank at year-end 2007 to reducethe goodwill balance to $55.0 million.

Credit problems continued to plague Vision Bank in 2008. Net loan charge-offsfor Vision Bank were $5.5 million during the first quarter or an annualized3.37% of average loans and increased to $10.8 million during the secondquarter or an annualized 6.41% of average loans. Based primarily on theincreased level of net loan charge-offs at Vision Bank during 2008, managementdetermined that it would be prudent to test for additional goodwill impairment.A goodwill impairment analysis was completed during the third quarter of 2008 and the conclusion was reached that a goodwill impairment charge of$55.0 million be recorded at Vision Bank during the third quarter of 2008 to eliminate the goodwill balance pertaining to Vision Bank. Refer to “Overview”section below for 2008, 2009 and 2010 impact of Vision Bank results on Park.

OVERVIEWNet income was $74.2 million for both 2010 and 2009, compared to netincome of $13.7 million in 2008. The primary reason for the large change innet income between 2009 and 2008 was the change in the net loss at VisionBank. The net loss at Vision Bank was $29.3 million in 2010, $30.1 million in 2009 and $81.2 million in 2008. As previously discussed, Vision Bank recognized a goodwill impairment charge of $55.0 million in 2008 to write-off the remaining goodwill asset.

Diluted earnings per common share were $4.51, $4.82 and $0.97 for 2010,2009 and 2008, respectively. Diluted earnings per common share decreased by$0.31 or 6.4% in 2010 compared to 2009 and increased by $3.85 or 396.9%in 2009 compared to 2008. While net income and net income available tocommon shareholders was effectively unchanged in 2010 from 2009, theissuance of common shares during 2010 resulted in a decline in diluted earnings per common share compared to last year.

The following tables show the components of net income for 2010, 2009 and2008. This information is provided for Park, Vision Bank and Park excludingVision Bank.

Table 1 – Park – Summary Income StatementsFor the years ended December 31,

(In thousands) 2010 2009 2008

Net interest income $274,044 $273,491 $255,873

Provision for loan losses 64,902 68,821 70,487

Other income 77,496 81,190 84,834

Other expense 187,107 188,725 179,515

Goodwill impairment charge — — 54,986

Income before taxes 99,531 97,135 35,719

Income taxes 25,314 22,943 22,011

Net income $ 74,217 $ 74,192 $ 13,708


Table 2 – Vision Bank – Summary Income StatementsFor the years ended December 31,

(In thousands) 2010 2009 2008

Net interest income $ 27,867 $ 25,634 $ 27,065


Other income (loss) (3,407) (2,047) 3,014

Other expense 31,623 28,091 27,149


Loss before taxes (46,392) (48,934) (99,019)

Income tax benefit (17,095) (18,824) (17,832)

Net loss $(29,297) $ (30,110) $(81,187)

Vision Bank continued to have severe credit problems in 2010. Vision Bank’snet loan charge-offs were $36.6 million in 2010, compared to $28.9 million in 2009 and $38.5 million in 2008. As a percentage of average loans, net loan charge-offs were 5.48% in 2010, 4.18% in 2009 and 5.69% in 2008. As previously discussed, Vision Bank recognized a goodwill impairment charge of $55.0 million in 2008.

Table 3 – Park, Excluding Vision Bank – Summary Income StatementsFor the years ended December 31,

(In thousands) 2010 2009 2008

Net interest income $246,177 $247,857 $228,808


Other income 80,903 83,237 81,820

Other expense 155,484 160,634 152,366

Goodwill impairment charge — — —

Income before taxes 145,923 146,069 134,738

Income taxes 42,409 41,767 39,843

Net income $103,514 $104,302 $ 94,895

Net income for Park excluding Vision Bank decreased by $788,000 or .8% to$103.5 million in 2010 compared to 2009 and increased by $9.4 million or9.9% to $104.3 million in 2009 compared to 2008.

SUMMARY DISCUSSION OF OPERATING RESULTS FOR PARKA year ago, Park’s management projected that net interest income would be $265 million to $275 million in 2010. The actual results in 2010 were$274.0 million, which were very close to the top of the estimated range. Park’smanagement projected that the average interest earning assets for 2010 wouldbe approximately $6,550 million. The actual average interest earning assets forthe year were $6,482 million, 1.0% lower than the projected balance. However,Park’s net interest margin for 2010 of 4.26% exceeded management’s estimatedrange of 4.15% to 4.20%. This positive variance was largely due to an improve-ment in the net interest rate spread (the difference between rates received forinterest earning assets and the rates paid for interest bearing liabilities.) The netinterest rate spread improved by 7 basis points to 4.01% for 2010 from 3.94%for 2009. Management had not projected an improvement in the net interestrate spread for 2010.

Park’s management also projected a year ago that the provision for loan losseswould be $45 million to $55 million in 2010. The actual provision for loanlosses in 2010 of $64.9 million exceeded the top of the estimated range by $9.9million. The primary reason that the actual provision for loan losses exceededmanagement’s estimated range in 2010 was due to the large number of newnonaccrual loans during the year, as well as continued devaluations of propertyvalues (primarily related to impaired loans at Vision Bank that are consideredto be collateral dependent). New nonperforming loans were $175.2 million in 2010, compared to $184.2 million in 2009 and $141.8 million in 2008.Park’s management had projected a significant decrease in the amount of new nonperforming loans in 2010 and accordingly had forecast a significantdecrease in the loan loss provision for 2010.

Other income for 2010 was $77.5 million, which includes gains from the sale of investment securities of $11.9 million. A year ago, Park’s management projected that total other income would be $75.3 million, which included estimated gains from the sale of investment securities of $7.3 million.Management sold more investment securities in 2010 than anticipated whichresulted in total other income being $2.2 million larger than projected.

A year ago, Park’s management projected that total other expense would beapproximately $191 million in 2010. Total other expense for 2010 was $187.1million and was below management’s estimate by $3.9 million or 2.0%.

A year ago, Park’s management projected that income before income taxes for2010 would be approximately $104.3 million (using the midpoint of rangeswhere applicable) based on the forecast for net interest income, provision forloan losses, other income and other expense. The actual income before incometaxes for 2010 was $99.5 million, $4.8 million or 4.6% below the estimate. Insummary, the actual results for net interest income, other income and otherexpense were a little better than the forecast for 2010, but the provision forloan losses was $9.9 million higher than the estimated range.

ISSUANCE OF PREFERRED STOCK AND EMERGENCY ECONOMIC STABILIZATION ACTOn October 3, 2008, Congress passed the Emergency Economic StabilizationAct of 2008 (“EESA”), which created the Troubled Asset Relief Program(“TARP”) and provided the Secretary of the Treasury with broad authority to implement certain actions to help restore stability and liquidity to U.S.markets. The Capital Purchase Program (the “CPP”) was announced by the U.S. Department of the Treasury (the “U.S. Treasury”) on October 14, 2008 as part of TARP. The CPP is voluntary and requires a participating institution tocomply with a number of restrictions and provisions, including standards forexecutive compensation and corporate governance and limitations on sharerepurchases and the declaration and payment of dividends on common shares.

Park elected to apply for $100 million of funds through the CPP. On December23, 2008, Park completed the sale to the U.S. Treasury of $100 million ofnewly-issued Park non-voting preferred shares as part of the CPP. Park enteredinto a Securities Purchase Agreement and a Letter Agreement with the U.S.Treasury on December 23, 2008. Pursuant to these agreements, Park issuedand sold to the U.S. Treasury (i) 100,000 of Park’s Fixed Rate CumulativePerpetual Preferred Shares, Series A, each without par value and having a liquidation preference of $1,000 per share (the “Series A Preferred Shares”),and (ii) a warrant (the “Warrant”) to purchase 227,376 Park common sharesat an exercise price of $65.97 per share, for an aggregate purchase price of$100 million. The Warrant has a ten-year term. All of the proceeds from thesale of the Series A Preferred Shares and the Warrant by Park to the U.S.Treasury under the CPP qualify as Tier 1 capital for regulatory purposes.

U.S. Generally Accepted Accounting Principles (GAAP) require management to allocate the proceeds from the issuance of the Series A Preferred Sharesbetween the Series A Preferred Shares and related Warrant. The terms of theSeries A Preferred Shares require Park to pay a cumulative dividend at the rateof 5 percent per annum until February 14, 2014, and 9 percent thereafter.Management determined that the 5 percent dividend rate is below market value;therefore, the fair value of the Series A Preferred Shares would be less than the$100 million in proceeds. Management determined that a reasonable marketdiscount rate was 12 percent for the fair value of the Series A Preferred Sharesand used the Black-Scholes model to calculate the fair value of the Warrant(and related common shares). The allocation between the Series A PreferredShares and the Warrant at December 23, 2008, the date of issuance, was $95.7million and $4.3 million, respectively. The discount on the Series A PreferredShares of $4.3 million is being accreted through retained earnings using thelevel yield method over a 60-month period. GAAP requires Park to measureearnings per share with earnings available to common shareholders. Therefore,the Consolidated Statements of Income reflect a line item for “Preferred stockdividends and accretion” and a line item for “Income available to common

31


32

shareholders”. The dividends and accretion on the Series A Preferred Sharestotaled $5,807,000 for 2010, $5,762,000 for 2009 and $142,000 for 2008. The accretion of the discount was $807,000 in 2010, $762,000 in 2009 and$18,000 in 2008. Management expects the accretion of the discount in 2011will be $856,000.

Income available to common shareholders is net income minus the preferredstock dividends and accretion. Income available to common shareholders was$68.4 million for both 2010 and 2009, and $13.6 million for 2008.

See Note 1 and Note 25 of the Notes to Consolidated Financial Statements foradditional information on the issuance of the Series A Preferred Shares.

DIVIDENDS ON COMMON SHARESPark declared quarterly cash dividends on common shares in 2010 that totaled$3.76 per share. The quarterly cash dividend on common shares was $0.94 pershare for each quarter of 2010.

Under the terms of the Securities Purchase Agreement with the U.S. Treasuryunder the CPP, Park is not permitted to increase the quarterly cash dividend onits common shares above $0.94 per share without seeking prior approval fromthe U.S. Treasury.

Cash dividends declared on common shares were $3.76 in both 2010 and 2009 and $3.77 in 2008. Park’s management expects to pay a quarterly cashdividend on its common shares of $0.94 per share in 2011. This expectation is based on management’s current forecast that earnings will be sufficient tomaintain historic dividend levels.

CRITICAL ACCOUNTING POLICIESThe significant accounting policies used in the development and presentation of Park’s consolidated financial statements are listed in Note 1 of the Notes toConsolidated Financial Statements. The accounting and reporting policies ofPark conform with U.S. GAAP and general practices within the financial servicesindustry. The preparation of financial statements in conformity with U.S. GAAPrequires management to make estimates and assumptions that affect theamounts reported in the financial statements and the accompanying notes.Actual results could differ from those estimates.

Park believes the determination of the allowance for loan losses involves ahigher degree of judgment and complexity than its other significant accountingpolicies. The allowance for loan losses is calculated with the objective of maintaining a reserve level believed by management to be sufficient to absorb probable incurred credit losses in the loan portfolio. Management’sdetermination of the adequacy of the allowance for loan losses is based on periodic evaluations of the loan portfolio and of current economic conditions.However, this evaluation is inherently subjective as it requires material estimates, including expected default probabilities, the loss given default, the amounts and timing of expected future cash flows on impaired loans, andestimated losses on consumer loans and residential mortgage loans based onhistorical loss experience and current economic conditions. All of these factorsmay be susceptible to significant change. To the extent that actual results differfrom management estimates, additional loan loss provisions may be requiredthat would adversely impact earnings for future periods. (Refer to the “CreditExperience-Provision for Loan Losses” section within this Financial Review foradditional discussion.)

Other real estate owned (“OREO”), property acquired through foreclosure, is recorded at estimated fair value less anticipated selling costs (net realizablevalue). If the net realizable value is below the carrying value of the loan on the date of transfer, the difference is charged to the allowance for loan losses.Subsequent declines in value, OREO devaluations, are reported as adjustmentsto the carrying amount of OREO and are expensed within other income. Gainsor losses not previously recognized, resulting from the sale of OREO, are recognized in other income on the date of sale. At December 31, 2010, OREOtotaled $44.3 million, representing a 7.5% increase compared to $41.2 millionat December 31, 2009.

Effective January 1, 2008, management implemented the fair value hierarchy,which has the objective of maximizing the use of observable market inputs. The related accounting guidance also requires enhanced disclosures regardingthe inputs used to calculate fair value. These inputs are classified as Level 1, 2,and 3. Level 3 inputs are those with significant unobservable inputs that reflect a company’s own assumptions about the market for a particular instrument.Some of the inputs could be based on internal models and cash flow analysis. At December 31, 2010, financial assets valued using Level 3 inputs for Park hadan aggregate fair value of approximately $158.9 million. This was 10.8% of thetotal amount of assets measured at fair value as of the end of the year. The fairvalue of impaired loans was approximately $111.3 million (or 70.0%) of thetotal amount of Level 3 inputs. Additionally, there were $96.2 million of loans that were impaired and carried at cost, as fair value exceeded book value foreach individual credit. The large majority of Park’s financial assets valued usingLevel 2 inputs consist of available-for-sale (“AFS”) securities. The fair value ofthese AFS securities is obtained largely by the use of matrix pricing, which is a mathematical technique widely used in the financial services industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship toother benchmark quoted securities.

Management believes that the accounting for goodwill and other intangibleassets also involves a higher degree of judgment than most other significantaccounting policies. GAAP establishes standards for the amortization ofacquired intangible assets and the impairment assessment of goodwill. Goodwill arising from business combinations represents the value attributableto unidentifiable intangible assets in the business acquired. Park’s goodwillrelates to the value inherent in the banking industry and that value is dependentupon the ability of Park’s banking subsidiaries to provide quality, cost-effectivebanking services in a competitive marketplace. The goodwill value is supportedby revenue that is in part driven by the volume of business transacted. Adecrease in earnings resulting from a decline in the customer base, the inabilityto deliver cost-effective services over sustained periods or significant creditproblems can lead to impairment of goodwill that could adversely impact earnings in future periods. GAAP requires an annual evaluation of goodwill forimpairment, or more frequently if events or changes in circumstances indicatethat the asset might be impaired. The fair value of the goodwill, which resideson the books of Park’s subsidiary banks, is estimated by reviewing the past and projected operating results for the Park subsidiary banks, deposit and loan totals for the Park subsidiary banks and banking industry comparableinformation. Park recognized a goodwill impairment charge of $55.0 million in the third quarter of 2008 to eliminate the goodwill balance pertaining toVision Bank. At December 31, 2010, on a consolidated basis, Park had coredeposit intangibles of $6.0 million subject to amortization and $72.3 million of goodwill, which was not subject to periodic amortization. The core depositintangibles recorded on the balance sheet of PNB totaled $1.4 million and the core deposit intangibles at Vision Bank were $4.6 million. The goodwillasset of $72.3 million is carried on the balance sheet of PNB.

ABOUT OUR BUSINESSThrough its Ohio-based banking divisions, Park is engaged in the commercialbanking and trust business, generally in small to medium population Ohio communities. Vision Bank is primarily engaged in the commercial bankingbusiness throughout the panhandle of Florida and in Baldwin County, Alabama.Management believes there are a significant number of consumers and busi-nesses which seek long-term relationships with community-based financialinstitutions of quality and strength. While not engaging in activities such asforeign lending, nationally syndicated loans or investment banking, Parkattempts to meet the needs of its customers for commercial, real estate andconsumer loans, consumer and commercial leases, and investment, fiduciaryand deposit services.


Park’s subsidiaries compete for deposits and loans with other banks, savings associations, credit unions and other types of financial institutions. At December 31, 2010, Park and its Ohio-based banking divisions operated 124 banking offices and a network of 151 automatic teller machines in 28 Ohio counties and one county in northern Kentucky. Vision Bank operated 17 banking offices and a network of 20 automatic teller machines in BaldwinCounty, Alabama and in five counties in the panhandle of Florida.

A table of financial data for Park’s banking subsidiaries and their divisions for 2010, 2009 and 2008 is shown in Table 4. See Note 23 of the Notes toConsolidated Financial Statements for additional financial information for theCorporation’s subsidiaries. Please note that the financial statements for variousdivisions of PNB are not maintained on a separate basis and, therefore, netincome is only an estimate by management.

Table 4 – Park National Corporation Affiliate Financial Data

2010 2009 2008Average Net Average Net Average Net

(In thousands) Assets Income Assets Income Assets Income

Park National Bank:Park NationalDivision $1,973,443 $25,903 $1,798,814 $26,991 $1,839,012 $25,445

Security NationalDivision 770,319 14,603 825,481 14,316 820,571 13,001

Century National Division 647,798 9,860 650,488 11,387 711,162 12,995

First-Knox NationalDivision 642,343 14,374 633,260 12,411 658,151 12,718

Richland Trust Division 519,102 9,754 563,776 9,954 526,989 8,946

Fairfield NationalDivision 459,050 9,695 484,849 9,368 337,355 7,332

Park National SW &N KY Division 405,889 2,590 416,502 1,841 416,398 1,506

Second National Division 385,534 7,570 371,079 6,926 423,062 5,752

United Bank Division 243,909 4,344 242,166 4,300 214,074 3,467

Unity NationalDivision 185,003 2,918 182,373 2,251 190,739 2,061

Farmers & SavingsDivision 103,121 1,337 107,437 1,713 119,014 2,042

Vision Bank 859,491 (29,297) 904,897 (30,110) 904,420 (81,187)

Parent Company,including consolidatingentries (152,252) 566 (145,591) 2,844 (452,861) (370)

ConsolidatedTotals $7,042,750 $74,217 $7,035,531 $74,192 $6,708,086 $13,708

SOURCE OF FUNDSDeposits: Park’s major source of funds is deposits from individuals, businesses and local government units. These deposits consist of noninterestbearing and interest bearing deposits.

Total year-end deposits decreased by $92.6 million or 1.8% to $5,095 million at December 31, 2010. Certificates of deposits, excluding brokered deposits,declined by $358.7 million or 16% in 2010. Brokered time deposits were $110million at December 31, 2010. All other deposits increased by $156 million or5% in 2010. The following table provides information on the change in depositsin 2010.

Table 5 – Year-End DepositsDecember 31,(In thousands) 2010 2009 Change

Noninterest bearing checking $ 937,719 $ 897,243 $ 40,476

Interest bearing transactionaccounts 1,283,158 1,193,845 89,313

Savings 899,288 873,137 26,151

Brokered time deposits 110,065 — 110,065

All other time deposits 1,863,838 2,222,537 (358,699)

Other 1,352 1,290 62

Total $5,095,420 $5,188,052 $ (92,632)

In 2010, total year-end deposits at Vision Bank decreased by $55.5 million or 8.0% and decreased by $37.1 million or 0.8% for Park’s Ohio-based operations.

Total year-end deposits increased by $426 million or 9.0% in 2009. Excluding a $236 million decline in brokered deposits in 2009, deposits increased by$662 million or 14.6% in 2009. In 2009, Vision Bank’s year-end total depositsincreased by $52 million or 8.2% and Park’s Ohio-based operations increaseddeposits by $374 million or 9.1%.

Average total deposits were $5,182 million in 2010, compared to $5,051million in 2009 and $4,603 million in 2008. Average noninterest bearingdeposits were $908 million in 2010, compared to $818 million in 2009 and $740 million in 2008.

Management expects that total deposits (exclusive of brokered deposits) willmodestly increase in 2011 by 1%. Excluding brokered deposits, total year-enddeposits decreased by 3.9% in 2010, which was in line with the guidance of a3% to 5% decline that was provided a year ago by Park’s management.

The Federal Open Market Committee (“FOMC”) of the Federal Reserve Boarddecreased the federal funds rate from 4.25% at December 31, 2007 to a rangeof 0% to 0.25% at year-end 2008. The FOMC aggressively lowered the federalfunds rate during 2008 as the severity of the economic recession increased. TheFOMC maintained the targeted federal funds rate in the 0% to 0.25% range forall of 2009 and 2010, as the U.S. economy gradually recovered from the severerecession. The average federal funds rate was 0.18% for 2010, compared to anaverage rate of 0.16% for 2009 and 1.93% in 2008.

The average interest rate paid on interest bearing deposits was 0.98% in 2010,compared to 1.53% in 2009 and 2.33% in 2008. The average cost of interestbearing deposits for each quarter of 2010 was 0.82% for the fourth quarter,0.91% for the third quarter, 1.04% for the second quarter and 1.15% for thefirst quarter.

Park’s management expects that due to the uncertainty of future economicgrowth following the economic recession, the FOMC will maintain the federalfunds interest rate at approximately 0.25% for most of 2011. As a result, Park’smanagement expects a slight decline in the average interest rate paid on interestbearing deposits in 2011.

Short-Term Borrowings: Short-term borrowings consist of securities sold under agreements to repurchase, Federal Home Loan Bank advances, federalfunds purchased and other borrowings. These funds are used to manage theCorporation’s liquidity needs and interest rate sensitivity risk. The average ratepaid on short-term borrowings generally moves closely with changes in marketinterest rates for short-term investments. The average rate paid on short-termborrowings was 0.39% in 2010 compared to 0.76% in 2009 and 2.38% in2008.

The average cost of short-term borrowings for each quarter of 2010 was 0.32% for the fourth quarter, 0.37% for the third quarter, 0.43% for the second quarter and 0.46% for the first quarter. Management expects theaverage rate paid on short-term borrowings in 2011 will be down slightly compared to 2010.

Average short-term borrowings were $301 million in 2010 compared to $420million in 2009 and $609 million in 2008. The decrease in average short-termborrowings in 2010 compared to 2009, as well as 2009 compared to 2008, was primarily due to the increase in average deposit balances in both 2010 and 2009. While average short-term borrowings declined in 2010 compared to 2009, the short-term borrowing balance at December 31, 2010 was $663.7million compared to $324.2 million at December 31, 2009, as Park increasedits investment portfolio at year-end 2010 and temporarily funded the increase in assets through short-term borrowings.

Long-Term Debt: Long-term debt primarily consists of borrowings from theFederal Home Loan Bank and repurchase agreements with investment bankingfirms. (The average balance of long-term debt and the average cost of long-termdebt includes the subordinated debentures discussed in the following section.)

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In 2010, average long-term debt was $725 million compared to $780 million in2009 and $836 million in 2008. Average total debt (long-term and short-term)was $1,026 million in 2010 compared to $1,200 million in 2009 and $1,445million in 2008. Average total debt decreased by $174 million or 14.5% in2010 compared to 2009 and decreased by $245 million or 16.9% in 2009compared to 2008. The decrease in average total debt in 2010 compared to2009, as well as compared to 2008, was primarily due to the increase inaverage deposits. Average long-term debt was 71% of average total debt in 2010 compared to 65% in 2009 and 58% in 2008.

The average rate paid on long-term debt was 3.91% for 2010, compared to3.38% for 2009 and 3.72% for 2008. In 2010, the average cost of long-termdebt for each quarter was 3.87% for the fourth quarter, 3.91% for the thirdquarter, 3.92% for the second quarter and 3.92% for the first quarter.

Management expects the average long-term debt balance will be approximately$850 million in 2011, as management increased long-term borrowings inJanuary 2011 by $150 million and used the proceeds to repay short-term borrowings. Additionally, management expects that the average rate paid on long-term debt will be approximately 3.50% in 2011.

Subordinated Debentures/Notes: Park assumed with the Vision acquisition,$15 million of floating rate junior subordinated notes. The interest rate on thesesubordinated notes adjusts every quarter at 148 basis points above the three-month LIBOR interest rate. The maturity date for the junior subordinated notesis December 30, 2035 and the junior subordinated notes may be prepaid afterDecember 30, 2010. These junior subordinated notes qualify as Tier 1 capitalunder current Federal Reserve System guidelines.

Park’s Ohio-based banking subsidiary, PNB, issued a $25 million subordinateddebenture on December 28, 2007. The interest rate on this subordinateddebenture adjusts every quarter at 200 basis points above the three-monthLIBOR interest rate. The maturity date for the subordinated debenture isDecember 29, 2017 and the subordinated debenture may be prepaid afterDecember 28, 2012. On January 2, 2008, Park entered into a “pay fixed-receivefloating” interest rate swap agreement for a notional amount of $25 million witha maturity date of December 28, 2012. This interest rate swap agreement wasdesigned to hedge the cash flows pertaining to the $25 million subordinateddebenture until December 28, 2012. Management converted the cash flows to a fixed interest rate of 6.01% through the use of the interest rate swap. Thissubordinated debenture qualifies as Tier 2 capital under the applicable regulations of the Office of the Comptroller of the Currency of the United States of America (the “OCC”) and the Federal Reserve System.

On December 23, 2009, Park issued $35.25 million of subordinated notes to 38 purchasers. These subordinated notes have a fixed annual interest rate of10% with quarterly interest payments. The maturity date of these subordinatednotes is December 23, 2019. These subordinated notes may be prepaid by Parkany time after December 23, 2014. The subordinated notes qualify as Tier 2capital under applicable rules of the Federal Reserve System. Each subordinatednote was purchased at a purchase price of 100% of the principal amount by anaccredited investor.

See Note 11 of the Notes to Consolidated Financial Statements for additionalinformation on the subordinated debentures and subordinated notes.

Sale of Common Stock: Park sold an aggregate of 509,184 common shares,out of treasury shares, during 2010. Of the 509,184 common shares sold in2010, 437,200 common shares were issued upon the exercise of warrants associated with the capital raise that closed on October 30, 2009. As part of the capital raise that closed on December 10, 2010, Park sold 71,984 commonshares and issued warrants for the purchase of 71,984 shares of commonstock. The warrants issued as part of the December 10, 2010 transaction have

aggregate of 35,992 common shares expire on June 10, 2011 and warrantscovering the purchase of the other 35,992 common shares expire on December10, 2011.

In total for 2010, Park sold 509,184 common shares and warrants covering71,984 common shares at a weighted average price per share of $67.99 forgross proceeds of $34.6 million. Net of selling expenses and professional fees,Park raised $33.5 million of common equity from capital raising activities in2010.

During 2009, Park sold 904,072 common shares and warrants covering500,000 common shares at a weighted average price per share of $61.20 forgross proceeds of $55.3 million. Net of selling expenses and professional fees,Park raised $53.5 million of common equity from capital raising activities in2009.

Stockholders’ Equity: Tangible stockholders’ equity (stockholders’ equityless goodwill and other intangible assets) to tangible assets (total assets lessgoodwill and other intangible assets) was 9.24% at December 31, 2010 compared to 9.13% at December 31, 2009 and 7.98% at December 31, 2008.

The ratio of tangible stockholders’ equity to tangible assets for each of the pastthree years includes the issuance of $100 million of Park Series A PreferredShares to the U.S. Treasury on December 23, 2008. In 2009, Park’s tangiblestockholders’ equity to tangible assets ratio increased largely as a result of thesale of common stock which increased equity by $53.5 million. In 2010, Park’stangible stockholders’ equity to tangible assets further increased largely as aresult of the sale of common stock which increased equity by $33.5 million.Excluding the $100.0 million of Series A Preferred Shares, the ratio of tangiblestockholders’ equity to tangible assets was 7.86% at December 31, 2010, 7.69%at December 31, 2009 and 6.54% at December 31, 2008.

In accordance with GAAP, Park reflects any unrealized holding gain or loss on AFS securities, net of income taxes, as accumulated other comprehensiveincome (loss) which is part of Park’s stockholders’ equity. The unrealizedholding gain on AFS securities, net of income taxes, was $15.1 million at year-end 2010, compared to $30.1 million at year-end 2009 and $31.6 million atyear-end 2008. Long-term and short-term interest rates decreased sharplyduring the fourth quarter of 2008 which caused the market value of Park’sinvestment securities to increase and produced the large unrealized holdinggain on AFS securities, net of income taxes, at December 31, 2009 and 2008.The net unrealized holding gains on AFS securities, net of taxes, decreased by$18.4 million in the fourth quarter of 2010 as interest rates increased inNovember and December.

In accordance with GAAP, Park adjusts accumulated other comprehensiveincome (loss) to recognize the net actuarial gain or loss reflected in theaccounting for Park’s Pension Plan. See Note 13 of the Notes to ConsolidatedFinancial Statements for information on the accounting for Park’s Pension Plan.

Pertaining to the Pension Plan, Park recognized a net comprehensive loss of$2.4 million in 2010, a net comprehensive gain of $6.3 million in 2009 and anet comprehensive loss of $16.2 million in 2008. The comprehensive loss in2010 was primarily due to a change in actuarial assumptions, specifically thediscount rate. This actuarial loss more than offset the positive investmentreturns and contributions to the Pension Plan in 2010. The comprehensive gainin 2009 was due to positive investment returns and contributions to the PensionPlan. The large comprehensive loss in 2008 was primarily due to the negativeinvestment return on Pension Plan assets in 2008, as a result of the poor performance of stock investments in 2008. At year-end 2010, the balance inaccumulated other comprehensive income/(loss) pertaining to the PensionPlan was ($15.9) million, compared to ($13.5) million at December 31, 2009and ($19.8) million at December 31, 2008.

Park also recognized net comprehensive income/(loss) of ($0.1) million, $0.3 million and ($1.3) million for the years ended December 31, 2010, 2009and 2008, respectively, due to the mark-to-market of the $25 million cash flow hedge. See Note 19 of the Notes to Consolidated Financial Statements for information on the accounting for Park’s derivative instruments.

an exercise price of $76.41 per share. Warrants covering the purchase of an


INVESTMENT OF FUNDSLoans: Average loans were $4,642 million in 2010 compared to $4,594 million in 2009 and $4,355 million in 2008. The average yield on loans was5.80% in 2010 compared to 6.03% in 2009 and 6.93% in 2008. The averageprime lending rate in 2010 and 2009 was 3.25% compared to 5.09% in 2008.

(see Table 23). The yield on average loan balances for each quarter of 2010was 5.73% for the fourth quarter, compared to 5.76% for the third quarter,5.84% for the second quarter and 5.87% for the first quarter. Managementexpects that the yield on the loan portfolio will decrease modestly in 2011 compared to the average yield of 5.80% for 2010. Year-end loan balancesincreased by $92 million or 2.0% in 2010 compared to 2009. Park’s Ohio-based subsidiaries increased loans by $129 million or 3.2% during 2010.Vision Bank had a decline in loans of $37 million or 5.4% during 2010.

In 2009, year-end loan balances increased by $149 million or 3.3%. Park’sOhio-based subsidiaries increased loans by $162 million or 4.3% during 2009.Vision Bank had a small decline in loans of $13 million or 1.9% in 2009.

In 2008, year-end loan balances increased by $267 million or 6.3%. During thefourth quarter of 2008, Park’s Ohio-based banking divisions sold $31 million of unsecured credit card balances. Exclusive of the sale of the credit card balances, year-end loan balances grew by $298 million or 7.0%. At Vision Bank,year-end loan balances increased by $51 million or 8.0% during 2008 to $690million. Park’s Ohio-based subsidiaries increased loans by $216 million or6.0% during 2008. Excluding the sale of the credit card balances, Park’s Ohio-based subsidiaries increased loans by $247 million or 6.9% in 2008.

A year ago, management projected that year-end loan balances would growapproximately 1% to 3% in 2010. The actual loan growth of 2.0% was consis-tent with this guidance. Management expects that loan growth for 2011 willcontinue to be in the 1% to 3% range as the demand for loans continues to be moderate as the economy recovers slowly from the recent recession.

Year-end residential real estate loans were $1,692 million, $1,555 million and$1,560 million in 2010, 2009 and 2008, respectively. Residential real estateloans increased by $137 million or 8.8% in 2010, decreased by $5 million or0.3% in 2009 and increased by $79 million or 5.3% during 2008. The increaseof $137 million in 2010 was primarily due to management’s decision to retain15-year, fixed-rate residential mortgage loans that were previously sold in thesecondary market. The balance of loans for this new product was $176 millionat December 31, 2010, with a weighted average interest rate of 3.82%.Management expects these loans will be held to maturity. Management does notexpect any growth in residential real estate loans in 2011, as Park’s customerswill continue to favor 30-year, fixed-rate residential mortgage loans.

The long-term fixed rate residential mortgage loans that Park originates aresold in the secondary market and Park typically retains the servicing on theseloans. As mentioned above, during 2010, Park began to retain 15-year, fixed-rate mortgage loans. The balance of sold fixed-rate residential mortgage loansdecreased by $47 million or 3.1% to $1,471 million at year-end 2010, com-pared to $1,518 million at year-end 2009 and $1,369 million at year-end 2008.Due to low long-term interest rates in 2009 and 2010, the demand for fixed-rate residential mortgage loans was extraordinary. Park originated and sold$358 million of fixed-rate residential mortgage loans in 2010 compared to$615 million in 2009, and $161 million in 2008. Additionally, as previously discussed, Park originated and retained $176 million of 15-year, fixed-rate residential mortgages in 2010. During 2009, Park originated and retained $8million of fixed-rate residential mortgage loans. Management expects that theloan origination volume of fixed-rate mortgage loans could decrease by 50% or more in 2011. The balance of sold fixed-rate residential mortgage loans is expected to increase by 1% to 3% in 2011.

Year-end consumer loans were $667 million, $704 million and $643 million in2010, 2009 and 2008, respectively. Consumer loans decreased by $37 millionor 5.3% in 2010, primarily due to a decline in automobile loans originated inOhio, as competition for automobile loans increased throughout the year.

Consumer loans increased by $61 million or 9.5% in 2009 and increased by$50 million or 8.4% in 2008. The increases in consumer loans for 2009 and2008 were primarily due to an increase in automobile loans originated throughautomobile dealers in Ohio. Management expects that consumer loans willdecrease by 1% to 3% in 2011.

On a combined basis, year-end commercial, financial and agricultural loans,real estate construction loans and commercial real estate loans totaled $2,371million, $2,377 million and $2,284 million at year-end 2010, 2009 and 2008,respectively. These combined loan totals declined by $6 million or 0.3% in2010, increased by $93 million or 4.1% in 2009 and increased by $141 million or 6.6% in 2008. Management expects that commercial, financial and agricultural loans, real estate construction loans and commercial realestate loans will grow by 1% to 3% in 2010.

Year-end lease balances were $3 million in both 2010 and 2009 and $4 million in 2008. Management continues to de-emphasize leasing and expectsthe balance to further decline in 2011.

Table 6 reports year-end loan balances by type of loan for the past five years.Table 6 – Loans by Type

December 31,(In thousands) 2010 2009 2008 2007 2006

Commercial, financial and agricultural $ 737,902 $ 751,277 $ 714,296 $ 613,282 $ 548,254

Real estate – construction 406,480 495,518 533,788 536,389 234,988

Real estate – residential 1,692,209 1,555,390 1,560,198 1,481,174 1,300,294

Real estate – commercial 1,226,616 1,130,672 1,035,725 993,101 854,869

Consumer 666,871 704,430 643,507 593,388 532,092Leases 2,607 3,145 3,823 6,800 10,205

Total Loans $4,732,685 $4,640,432 $4,491,337 $4,224,134 $3,480,702

Table 7 – Selected Loan Maturity DistributionOver One Over

December 31, 2010 One Year Through Five(In thousands) or Less (1) Five Years Years Total

Commercial, financial andagricultural $ 325,895 $263,847 $ 148,160 $ 737,902

Real estate – construction 230,426 96,599 79,455 406,480Real estate – commercial 200,549 235,700 790,367 1,226,616

Total $ 756,870 $596,146 $1,017,982 $2,370,998

Total of these selected loans due after one year with:

Fixed interest rate $ 553,098Floating interest rate $1,061,030

(1) Nonaccrual loans of $192,492 are included within the one year or less classification above.

Investment Securities: Park’s investment securities portfolio is structured to minimize credit risk, provide liquidity and contribute to earnings. Park’sinvestment strategy is dynamic. As conditions change over time, Park’s overallinterest rate risk, liquidity needs and potential return on the investment portfo-lio will change. Management regularly evaluates the securities in the investmentportfolio as circumstances evolve. Circumstances that could result in the sale ofa security include: to better manage interest rate risk; to meet liquidity needs;or to improve the overall yield in the investment portfolio.

Park classifies most of its securities as AFS (see Note 4 of the Notes toConsolidated Financial Statements). These securities are carried on the booksat their estimated fair value with the unrealized holding gain or loss, net offederal taxes, accounted for as accumulated other comprehensive income(loss) which is part of the Corporation’s equity. The securities that are classifiedas AFS are free to be sold in future periods in carrying out Park’s investmentstrategies.

Generally, Park classifies U.S. Government Agency collateralized mortgage obligations (“CMOs”) that it purchases as held-to-maturity. A classification ofheld-to-maturity means that Park has the positive intent and the ability to holdthese securities until maturity. Park classifies CMOs as held-to-maturity becausethese securities are generally not as liquid as the U.S. Government Agency

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Approximately 62% of Park’s loan balances mature or reprice within one year


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mortgage-backed securities and U.S. Government Agency notes that Park classifies as AFS. At year-end 2010, Park’s held-to-maturity securities portfoliowas $674 million, compared to $507 million at year-end 2009 and $428million at year-end 2008. Park purchased $314 million of CMOs in 2010, $119 million of CMOs in 2009 and $270 million of CMOs in 2008. All of themortgage-backed securities and CMOs in Park’s investment portfolio wereissued by a U.S. Government Agency.

Average taxable investment securities were $1,730 million in 2010, comparedto $1,848 million in 2009 and $1,756 million in 2008. The average yield ontaxable securities was 4.44% in 2010, compared to 4.90% in 2009 and 5.00%in 2008. Average tax-exempt investment securities were $17 million in 2010,compared to $30 million in 2009 and $45 million in 2008. The average tax-equivalent yield on tax-exempt investment securities was 7.24% in 2010,compared to 7.45% in 2009 and 6.90% in 2008.

Year-end total investment securities (at amortized cost) were $2,017 million in 2010, $1,817 million in 2009 and $2,010 million in 2008. Management purchased investment securities totaling $3,033 million in 2010, $469 millionin 2009 and $693 million in 2008. The significant increase in purchases during 2010 was largely due to the purchase of $1,319 million of 28-day U.S. Government Agency discount notes and $823 million of U.S. GovernmentAgency callable notes. Proceeds from repayments and maturities of investmentsecurities were $2,385 million in 2010, $467 million in 2009 and $310 millionin 2008. The increase in proceeds from repayments and maturities in 2010 was primarily due to the 28-day U.S. Government Agency discount notes and U.S. Government Agency callable notes, which had repayments or maturities of$1,319 million and $710 million, respectively during the year. Proceeds fromsales of AFS securities were $460 million in 2010, $204 million in 2009 and$81 million in 2008. Park realized net security gains on a pre-tax basis of $11.9 million in 2010, $7.3 million in 2009 and $1.1 million in 2008.

During 2010, Park sold investment securities during the first, second and fourth quarters. In total, these sales resulted in proceeds of $460.2 million and a pre-tax gain of $11.9 million.

During the first quarter of 2010, Park sold $200.7 million of U.S. GovernmentAgency mortgage-backed securities for a pre-tax gain of $8.3 million. Thesemortgage-backed securities had a weighted average remaining life of approxi-mately 3 years, a weighted average book yield of 4.75% and were sold at anaverage price of 103.7% of the principal balance with an estimated yield to thebuyer of 2.99%. Additionally, Park sold $75 million of U.S. Government Agencycallable notes for no gain or loss in the first quarter to reduce the extensionrisk in the investment securities portfolio in the case of interest rate increases in the future. These securities had a book yield of 4.25% and a final maturity in approximately 9 years.

During the second quarter of 2010, Park sold $57 million of U.S. GovernmentAgency mortgage-backed securities for a pre-tax gain of $3.5 million. Thesemortgage-backed securities had a weighted average remaining life of approxi-mately 3 years, a weighted average book yield of 4.64% and were sold at anaverage price of 105.8% of the principal balance with an estimated yield to the buyer of 2.08%.

During the fourth quarter of 2010, Park sold $115.8 million of U.S. GovernmentAgency callable notes for a small gain of $45,000. These securities had a bookyield of 3.37% and a final maturity in approximately 10 years.

During the second quarter of 2009, Park sold U.S. Government Agency mortgage-backed securities with a book value of $197 million, for proceeds of $204.3 million and a pre-tax gain of $7.3 million. These securities had abook yield of 4.70% and a weighted average remaining life of about 3 years.These mortgage-backed securities were sold at a price of approximately103.2% of par with an estimated yield to the buyer of 3.33%.

During the first quarter of 2011, Park sold approximately $105 million of U.S. Government Agency mortgage-backed securities for a pre-tax gain of $6.6million. These securities were sold at a price of approximately 106.2% of parwith an estimated yield to the buyer of 2.10%. The book yield on these mort-gage-backed securities is approximately 5.02%. Management expects to reinvestthe proceeds from the sale of the mortgage-backed securities late in the firstquarter of 2011.

At year-end 2010 and 2009, the average tax-equivalent yield on the total invest-ment portfolio was 4.01% and 4.87%, respectively. The weighted averageremaining maturity was 3.6 years at December 31, 2010 and 3.5 years atDecember 31, 2009. U.S. Government Agency asset-backed securities wereapproximately 82% of the total investment portfolio at year-end 2010 and wereapproximately 76% of the total investment portfolio at year-end 2009. Thissegment of the investment portfolio consists of 15-year mortgage-backed securities and CMOs.

The average maturity of the investment portfolio would lengthen if long-terminterest rates would increase as the principal repayments from mortgage-backed securities and CMOs would be reduced and callable U.S. GovernmentAgency notes would extend to their maturity dates. At year-end 2010, manage-ment estimated that the average maturity of the investment portfolio wouldlengthen to 6.0 years with a 100 basis point increase in long-term interest ratesand to 6.6 years with a 200 basis point increase in long-term interest rates.Likewise, the average maturity of the investment portfolio would shorten if long-term interest rates would decrease as the principal repayments frommortgage-backed securities and CMOs would increase as borrowers would refinance their mortgage loans and the callable U.S. Government Agency noteswould shorten to their call dates. At year-end 2010, management estimated thatthe average maturity of the investment portfolio would decrease to 2.2 yearswith a 100 basis point decrease in long-term interest rates and to 1.6 years with a 200 basis point decrease in long-term interest rates.

Table 8 sets forth the carrying value of investment securities, as well as the percentage held within each category at year-end 2010, 2009 and 2008:

Table 8 – Investment Securities

December 31,(In thousands) 2010 2009 2008

Obligations of U.S. Treasury and other U.S. Government sponsored entities $ 273,313 $ 347,595 $ 128,688

Obligations of states and political subdivisions 14,211 20,123 37,188

U.S. Government asset-backed securities 1,681,815 1,425,361 1,822,587

Federal Home Loan Bank stock 61,823 62,044 61,928

Federal Reserve Bank stock 6,876 6,875 6,876

Equities 1,753 1,562 1,784

Total $2,039,791 $1,863,560 $2,059,051

Investments by category as a percentage oftotal investment securities

Obligations of U.S. Treasury and other U.S. Government sponsored entities 13.4% 18.6% 6.2%

Obligations of states and political subdivisions 0.7% 1.1% 1.8%

U.S. Government asset-backed securities 82.5% 76.5% 88.5%

Federal Home Loan Bank stock 3.0% 3.3% 3.0%

Federal Reserve Bank stock 0.3% 0.4% 0.4%

Equities 0.1% 0.1% 0.1%

Total 100.0% 100.0% 100.0%

ANALYSIS OF EARNINGSPark’s principal source of earnings is net interest income, the differencebetween total interest income and total interest expense. Net interest incomeresults from average balances outstanding for interest earning assets and interest bearing liabilities in conjunction with the average rates earned and paid on them. (See Table 9 for three years of history on the average balances of the balance sheet categories and the average rates earned on interest earningassets and the average rates paid on interest bearing liabilities.)


Net interest income increased slightly by $553,000 or 0.2% to $274.0 millionfor 2010 compared to an increase of $17.6 million or 6.9% to $273.5 millionfor 2009. The tax equivalent net yield on interest earning assets was 4.26% for2010 compared to 4.22% for 2009 and 4.16% for 2008. The net interest ratespread (the difference between rates received for interest earning assets and the rates paid for interest bearing liabilities) was 4.01% for 2010, compared to3.94% for 2009 and 3.82% for 2008. The small increase in net interest incomein 2010 was due to the increase in the net interest spread to 4.01% from3.94%. The average balance of interest earning assets decreased slightly by $42million or 0.7% to $6,482 million in 2010. In 2009, the increase in net interestincome was primarily due to the increase in average interest earning assets of$353 million or 5.7% to $6,524 million and to an increase in the net interestspread to 3.94% from 3.82% in 2008.

The average yield on interest earning assets was 5.36% in 2010 compared to5.67% in 2009 and 6.37% in 2008. The average federal funds rate for 2010 was 0.18%, compared to an average rate of 0.16% in 2009 and 1.93% in 2008.On a quarterly basis for 2010, the average yield on interest earning assets was5.23% for the fourth quarter, 5.34% for the third quarter, 5.44% for the secondquarter and 5.45% for the first quarter. Management expects that the averageyield on interest earning assets will also slightly decrease in 2011, similar to the decrease in 2010.

The average rate paid on interest bearing liabilities was 1.35% in 2010, compared to 1.73% in 2009 and 2.55% in 2008. On a quarterly basis for 2010, the average rate paid on interest bearing liabilities was 1.21% for thefourth quarter, 1.29% for the third quarter, 1.40% for the second quarter and 1.49% for the first quarter. Management expects that the average rate paid on interest bearing liabilities will modestly decrease in 2011, similar to the decrease in 2010.

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Table 9 – Distribution of Assets, Liabilities and Stockholders’ Equity

December 31, 2010 2009 2008(In thousands) Daily Average Daily Average Daily Average

Average Interest Rate Average Interest Rate Average Interest Rate

ASSETSInterest earning assets:

Loans (1) (2) $4,642,478 $269,306 5.80% $4,594,436 $276,893 6.03% $4,354,520 $301,926 6.93%

Taxable investment securities 1,729,511 76,838 4.44% 1,847,706 90,558 4.90% 1,755,879 87,711 5.00%

Tax-exempt investment securities (3) 16,845 1,220 7.24% 29,597 2,205 7.45% 45,420 3,134 6.90%

Money market instruments 93,009 200 0.22% 52,658 116 0.22% 15,502 295 1.90%

Total interest earning assets 6,481,843 347,564 5.36% 6,524,397 369,772 5.67% 6,171,321 393,066 6.37%

Noninterest earning assets:Allowance for loan losses (119,639) (103,683) (86,485)

Cash and due from banks 116,961 110,227 143,151

Premises and equipment, net 69,839 67,944 69,278

Other assets 493,746 436,646 410,821

TOTAL $7,042,750 $7,035,531 $6,708,086

LIABILITIES AND STOCKHOLDERS’ EQUITYInterest bearing liabilities:

Transaction accounts $1,354,392 $4,450 0.33% $1,229,553 $ 7,889 0.64% $1,364,635 $ 19,509 1.43%

Savings deposits 891,021 1,303 0.15% 805,783 2,926 0.36% 585,505 3,124 0.53%

Time deposits 2,029,088 36,212 1.78% 2,197,055 53,805 2.45% 1,912,640 67,259 3.52%

Total interest bearing deposits 4,274,501 41,965 0.98% 4,232,391 64,620 1.53% 3,862,780 89,892 2.33%

Short-term borrowings 300,939 1,181 0.39% 419,733 3,209 0.76% 609,219 14,469 2.38%

Long-term debt (4) 725,356 28,327 3.91% 780,435 26,370 3.38% 835,522 31,105 3.72%

Total interest bearing liabilities 5,300,796 71,473 1.35% 5,432,559 94,199 1.73% 5,307,521 135,466 2.55%

Noninterest bearing liabilities:Demand deposits 907,514 818,243 739,993

Other 87,885 109,415 92,607

Total noninterest bearing liabilities 995,399 927,658 832,600

Stockholders’ equity 746,555 675,314 567,965

TOTAL $7,042,750 $7,035,531 $6,708,086

Net interest earnings $276,091 $275,573 $257,600

Net interest spread 4.01% 3.94% 3.82%

Net yield on interest earning assets 4.26% 4.22% 4.16%

(1) Loan income includes loan related fee income of $9 in 2010, $1,372 in 2009 and $4,650 in 2008. Loan income also includes the effects of taxable equivalent adjustments using a 35% tax rate in 2010,2009 and 2008. The taxable equivalent adjustment was $1,614 in 2010, $1,294 in 2009 and $763 in 2008.

(2) For the purpose of the computation, nonaccrual loans are included in the daily average loans outstanding.

(3) Interest income on tax-exempt investment securities includes the effects of taxable equivalent adjustments using a 35% tax rate in 2010, 2009 and 2008. The taxable equivalent adjustments were $434 in2010, $788 in 2009 and $964 in 2008.

(4) Includes subordinated debenture and subordinated notes.


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The following table displays (for each quarter of 2010) the average balance ofinterest earning assets, net interest income and the tax equivalent net interestmargin.

Table 10 – Quarterly Net Interest Margin

Average Interest Net Interest Tax Equivalent(In thousands) Earning Assets Income Net Interest Margin

First Quarter $6,528,149 $ 67,380 4.22%

Second Quarter 6,468,094 68,721 4.29%

Third Quarter 6,484,941 69,445 4.28%

Fourth Quarter 6,447,046 68,498 4.25%

2010 $6,481,843 $274,044 4.26%

Management expects that average interest earnings assets will be approximately$6,550 million for 2011. Management expects that net interest income will be$268 to $278 million in 2011 and that the tax equivalent net interest marginwill be approximately 4.10% to 4.20% in 2011. (Please see the “SummaryDiscussion of Operating Results for Park” section of this Financial Review for a comparison of 2010 results to management’s projections from a year ago.)

The change in interest due to both volume and rate has been allocated tovolume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

Table 11 – Volume/Rate Variance AnalysisChange from 2009 to 2010 Change from 2008 to 2009

(In thousands) Volume Rate Total Volume Rate Total

Increase (decrease) in:Interest income:

Total loans $ 2,915 $(10,502) $(7,587) $15,891 $(40,924) $(25,033)

Taxable investments (5,560) (8,160) (13,720) 4,600 (1,753) 2,847

Tax-exempt investments (925) (60) (985) (1,163) 234 (929)

Money marketinstruments 84 — 84 250 (429) (179)

Total interest income (3,486) (18,722) (22,208) 19,578 (42,872) (23,294)

Interest expense:Transaction accounts $ 725 $ (4,164) $(3,439) $ (1,766) $ (9,854) $(11,620)

Savings accounts 270 (1,893) (1,623) 968 (1,166) (198)

Time deposits (3,844) (13,749) (17,593) 9,026 (22,480) (13,454)

Short-term borrowings (746) (1,282) (2,028) (3,536) (7,724) (11,260)

Long-term debt (1,960) 3,917 1,957 (1,985) (2,750) (4,735)

Total interest expense (5,555) (17,171) (22,726) 2,707 (43,974) (41,267)

Net variance $ 2,069 $ (1,551) $ 518 $16,871 $ 1,102 $ 17,973

Other Income: Total other income decreased by $3.7 million or 4.5% to$77.5 million in 2010 compared to a decrease of $3.6 million or 4.3% to $81.2 million in 2009. Park’s total other income in 2008 was positivelyimpacted by two “one-time” items totaling $14.9 million. The “one-time” positive items in 2008 were $3.1 million of revenue recognized as a result of the initial public offering of Visa, Inc. and an aggregate of $11.8 million ofrevenue which resulted from the sale of the unsecured credit card balances and the sale of the merchant processing business. In 2009, Park’s total otherincome included a “one-time” positive item of $3.0 million from the sale of allthe Class B shares of stock that Park received from the initial public offering ofVisa, Inc.

The following table displays total other income for Park in 2010, 2009 and 2008.

Table 12 – Other Income

Year Ended December 31(In thousands) 2010 2009 2008

Income from fiduciary activities $13,874 $12,468 $13,937

Service charges on deposits 19,717 21,985 24,296

Net gains on sales of securities 11,864 7,340 1,115

Other service income 13,816 18,767 8,882

Checkcard fee income 11,177 9,339 8,695

Bank owned life insurance income 4,978 5,050 5,102

ATM fees 2,951 3,082 3,063

OREO devaluations (10,590) (6,818) (2,948)

Other 9,709 9,977 22,692

Total other income $77,496 $81,190 $84,834

Income from fiduciary activities increased by $1.4 million or 11.3% to $13.9million in 2010 and decreased by $1.5 million or 10.5% to $12.5 million in2009. The increase in fiduciary fee income in 2010 was primarily due to theimprovement in the equity markets during the year compared to 2009 and alsodue to an increase in the total accounts served by Park’s Trust department. Parkcharges fiduciary fees based on the market value of the assets being managed.The Dow Jones Industrial Average stock index annual average was 11,244 forcalendar 2008, 8,885 for calendar year 2009, and 10,669 for calendar year2010. The market value of the assets that Park manages was $3.3 billion at December 31, 2010 compared to $3.1 billion at December 31, 2009 and $2.7 billion at December 31, 2008. Management expects an increase of approximately 5% in fee income from fiduciary activities in 2011.

Service charges on deposit accounts decreased by $2.3 million or 10.3% to$19.7 million in 2010 and decreased by $2.3 million or 9.5% to $22.0 millionin 2009. The decrease in service charge income in 2010 was primarily due to a decrease in fee income from overdraft charges and other non-sufficient funds(NSF) charges. Park’s customers did not use our courtesy overdraft program asfrequently in 2010 and, as a result, this fee income decreased by $2.0 millionor 11.6% in 2010 compared to 2009. Management expects that revenue fromservice charges on deposits in 2011 will be within a range of $18 million to $20 million.

Fee income earned from origination and sale into the secondary market oflong-term fixed-rate mortgage loans is included within other non-yield relatedfees in the subcategory “Other service income”. Other service incomedecreased by $5.0 million, or 26.4%, to $13.8 million in 2010. This largedecrease was due to a decline in the volume of fixed-rate residential mortgageloans that Park originated and sold into the secondary market in 2010 com-pared to 2009. The amount of fixed-rate mortgage loans originated and sold in2010 was $358 million, compared to $615 million in 2009 and $161 million in 2008. Additionally, as previously discussed, Park originated and retained$176 million of 15-year, fixed-rate residential mortgages in 2010. During 2009,Park originated and retained $8 million of fixed-rate residential mortgageloans. In 2009, other service income increased by $9.9 million or 111.3% to $18.8 million, which was related to the aforementioned increase in fixed-ratemortgage loans originated and sold in 2009. Park’s management expects thatthe volume of fixed-rate residential mortgage loans will continue to decline in 2011 and as a result expects that other service income will decrease byapproximately $2 million or 14% in 2011.

Checkcard fee income, which is generated from debit card transactionsincreased $1.8 million or 19.7% to $11.2 million in 2010. During 2009, checkcard fee income increased $644,000 or 7.4% to $9.3 million. Theincreases in both 2010 and 2009 were attributable to continued increases inthe volume of debit card transactions. Park’s management expects checkcardfee income will decline by approximately $2 million or 18% in 2011, as allbanks are likely to experience some impact related to the Durbin Amendmentthat became a part of the Dodd-Frank Wall Street Reform and ConsumerProtection Act.


OREO devaluations, which result from declines in the fair value (less anticipated selling costs) of property acquired through foreclosure, increased$3.8 million or 55.3% to $10.6 million in 2010. The increase in OREO devaluations was primarily due to devaluations of other real estate owned atVision Bank. These devaluations were $8.8 million in 2010 compared to $6.1million in 2009. Park’s management expects that OREO devaluations will be less significant in 2011 as property values throughout Park’s footprint areexpected to stabilize throughout the 2011 year.

The subcategory of “Other” income includes fees earned from the sale of official checks and printed checks, rental fee income from safe deposit boxesand other miscellaneous income. Total other income decreased by $268,000 or 2.7% to $9.7 million in 2010 and decreased by $12.7 million or 56.0% to$10.0 million in 2009. The large decrease in 2009 was primarily due to the two “one-time” revenue items in 2008 which totaled $14.9 million. Park alsohad a $3.0 million positive “one-time” revenue item in 2009. Park’s manage-ment expects 2011 revenue within the subcategory of other income will beconsistent with the results experienced in 2010.

Park recognized net gains from the sale of investment securities of $11.9million in 2010, $7.3 million in 2009 and $1.1 million in 2008. As previouslydiscussed, Park expects to recognize a gain of approximately $6.6 million fromthe sale of securities in the first quarter of 2011.

A year ago, Park’s management forecast that total other income, excluding gainsfrom the sale of securities, would be approximately $68 million for 2010. Theactual performance was below our estimate by $2.4 million or 3.5% at $65.6million. For 2011, Park’s management expects that total other income, exclud-ing gains from the sale of securities, will be approximately $63 million to $67million.

Other Expense: Total other expense was $187.1 million in 2010, compared to$188.7 million in 2009 and $234.5 million in 2008. Total other expenseincluded a goodwill impairment charge of $55.0 million in 2008. Total otherexpense decreased by $1.6 million, or 0.9%, to $187.1 million in 2010.Excluding the goodwill impairment charge in 2008, total other expenseincreased by $9.2 million or 5.1% to $188.7 million in 2009.

The following table displays total other expense for Park in 2010, 2009 and2008.

Table 13 – Other Expense

Year Ended December 31,(In thousands) 2010 2009 2008

Salaries and employee benefits $98,315 $101,225 $ 99,018


Data processing fees 5,728 5,674 7,121

Fees and service charges 19,972 15,935 12,801

Net occupancy expense of bank premises 11,510 11,552 11,534

Amortization of intangibles 3,422 3,746 4,025

Furniture and equipment expense 10,435 9,734 9,756

Insurance 8,983 12,072 2,322

Marketing 3,656 3,775 4,525

Postage and telephone 6,648 6,903 7,167

State taxes 3,171 3,206 2,989

Other 15,267 14,903 18,257

Total other expense $187,107 $188,725 $234,501

Salaries and employee benefits expense decreased by $2.9 million or 2.9% to$98.3 million in 2010 and increased by $2.2 million or 2.2% to $101.2 millionin 2009. The decrease in 2010 was primarily related to lower employee benefitcosts, as pension plan expense decreased approximately $2.4 million. Full-timeequivalent employees at year-end 2010 were 1,969, compared to 2,024 at year-end 2009 and 2,051 at year-end 2008. A year ago, Park’s management projected that salaries and benefit expense would be $102 million for 2010.

The actual performance for the year was $3.7 million or 3.6% lower than theestimate. For 2011, management is projecting salaries and employee benefitsexpense to increase by $3.7 million or 3.7% to $102 million for the year.

Vision Bank recorded goodwill impairment charges of $55.0 million in 2008.See Note 1 of the Notes to Consolidated Financial Statements for a discussion of the goodwill impairment charges. Vision Bank did not have any remaininggoodwill at year-end 2008.

Fees and service charges increased by $4.0 million or 25.3% to $20.0 millionin 2010 and increased by $3.1 million or 24.5% to $15.9 million in 2009. Thissubcategory of total other expense includes legal fees, management consultingfees, director fees, audit fees, regulatory examination fees and memberships inindustry associations. The large increase in fees and service charges expense inboth 2009 and 2010 was primarily due to an increase in legal fees and consult-ing fees. This additional expense was primarily related to an increase in costsassociated with the workout of problem loans at Park’s Vision Bank subsidiary.Park’s management expects that fees and service charges will be approximately$17 million to $19 million in 2011.

Insurance expense decreased by $3.1 million or 25.6% to $9.0 million in 2010 and increased by $9.8 million or 419% to $12.1 million in 2009. Thedecrease in 2010 and the increase in insurance expense in 2009 were primarilydue to changes in FDIC insurance expense. In 2010, FDIC insurance expensedecreased by $3.0 million to $8.0 million and in 2009, FDIC insurance expenseincreased by $9.5 million to $11.0 million. Park’s management expects thatinsurance expense will be between $6 million to $8 million in 2011.

The subcategory “other” expense includes expenses for supplies, travel, charitable contributions, amortization of low income housing tax investments,expenses pertaining to other real estate owned and other miscellaneousexpenses. The subcategory other expense increased by $364,000 or 2.4% to$15.3 million in 2010 and decreased by $3.4 million or 18.4% to $14.9 millionin 2009. The decrease in the subcategory other expense in 2009 was primarilydue to a $1.9 million decrease to $2.2 million in other real estate ownedexpense.

A year ago, Park’s management projected that total other expense would beapproximately $191 million in 2010. The actual expense for the year of $187.1million was $3.9 million or 2.0% lower than the estimate. This variance wasprimarily due to lower than anticipated employee benefit costs. Managementexpects that total other expense for 2011 will be approximately $183 million to $187 million.

Income Taxes: Federal income tax expense was $26.5 million in 2010, compared to $25.4 million in 2009 and $24.3 million in 2008. State income tax expense was a credit for each of the past three years of $(1.2) million in2010, $(2.5) million in 2009 and $(2.3) million in 2008. State income taxexpense was a credit in 2010, 2009 and 2008, because Vision Bank had losses in all three years. Park performs an analysis to determine if a valuationallowance against deferred tax assets is required in accordance with GAAP.Vision Bank is subject to state income tax in Alabama and Florida. In 2010, a state tax benefit of $1.16 million was recorded by Vision Bank, consisting of a gross benefit of $2.26 million and a valuation allowance of $1.10 million($712,000 net of the federal income tax benefit). Management has determinedthat the likelihood of realizing the full deferred tax asset on state net operatingloss carryforwards fails to meet the “more likely than not” level. The net operating loss carryforward period for the states of Alabama and Florida are 8 years and 20 years, respectively. A merger of Vision Bank into Park NationalBank would ensure the future utilization of the state net operating loss carry -forward at Vision Bank. However, management is not certain when a merger of Vision Bank into Park National Bank can take place and as a result hasdecided not to record the additional state tax benefit of losses at Vision Bankuntil management has a better understanding of the timing and likelihood of a merger of Vision Bank into Park National Bank. Park and its Ohio-based

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subsidiaries do not pay state income tax to the state of Ohio, but pay a franchisetax based on year-end equity. The franchise tax expense is included in “statetaxes” as part of total other expense on Park’s Consolidated Statements ofIncome.

Federal income tax expense as a percentage of income before taxes was 26.6% in 2010, compared to 26.2% in 2009 and 68.1% in 2008. The goodwillimpairment charge of $55.0 million in 2008 reduced income tax expense byapproximately $1 million. For 2008, the percentage of federal income taxexpense to income before taxes (adjusted for the goodwill impairment charges)was 26.8%.

A lower federal effective tax rate than the statutory rate of 35% is primarily dueto tax-exempt interest income from state and municipal investments and loans,low income housing tax credits and income from bank owned life insurance.Park’s management expects that the federal effective income tax rate for 2011will be approximately 26% to 28%.

CREDIT EXPERIENCEProvision for Loan Losses: The provision for loan losses is the amountadded to the allowance for loan losses to absorb future loan charge-offs. Theamount of the loan loss provision is determined by management after reviewingthe risk characteristics of the loan portfolio, historic and current loan lossexperience and current economic conditions.

The provision for loan losses was $64.9 million in 2010, $68.8 million in 2009and $70.5 million in 2008. Net loan charge-offs were $60.2 million in 2010,$52.2 million in 2009 and $57.5 million in 2008. The ratio of net loan charge-offs to average loans was 1.30% in 2010, 1.14% in 2009 and 1.32% in 2008.

The loan loss provision for Vision Bank was $39.2 million in 2010, $44.4million in 2009 and $47.0 million in 2008. Net loan charge-offs for Vision Bankwere $36.6 million in 2010, $28.9 million in 2009 and $38.5 million in 2008.Vision Bank’s ratio of net loan charge-offs to average loans was 5.48% in 2010,4.18% in 2009 and 5.69% in 2008.

Park’s Ohio-based subsidiaries had a combined loan loss provision of $25.7million in 2010, $24.4 million in 2009 and $23.5 million in 2008. Net loancharge-offs for Park’s Ohio-based subsidiaries were $23.6 million in 2010,$23.3 million in 2009 and $19.0 million in 2008. The net loan charge-off ratiofor Park’s Ohio-based subsidiaries was 0.60% for both 2010 and 2009 and0.52% for 2008.

At year-end 2010, the allowance for loan losses was $121.4 million or 2.57% of total loans outstanding, compared to $116.7 million or 2.52% of total loansoutstanding at year-end 2009 and $100.1 million or 2.23% of total loans out-standing at year-end 2008. The increase in the allowance for loan losses as apercentage of total loans outstanding over the past three years is primarily dueto an increase in specific reserves established for impaired commercial loans.As these impaired loans are resolved, management expects the allowance forloan losses as a percentage of total loans will return to historic levels. The tablebelow provides additional information related to specific reserves on impairedcommercial loans and general reserves for all other loans in Park’s portfolio at December 31, 2010, 2009 and 2008.

Table 14 – General Reserve Trends

Year Ended December 31,(In thousands) 2010 2009 2008

Allowance for loan losses, end of period $ 121,397 $ 116,717 $ 100,088

Specific reserves 43,459 36,721 8,875

General reserves $77,938 $79,996 $91,213

Total loans $4,732,685 $4,640,432 $4,491,337

Impaired commercial loans 250,933 201,143 141,343

Non-impaired loans $4,481,752 $4,439,289 $4,349,994

Allowance for loan losses as a percentageof period end loans 2.57% 2.52% 2.23%

General reserves as a percentage of non-impaired loans 1.74% 1.80% 2.10%

Management believes that the allowance for loan losses at year-end 2010 is adequate to absorb probable incurred credit losses in the loan portfolio. SeeNote 1 of the Notes to Consolidated Financial Statements and the discussionunder the heading “Critical Accounting Policies” earlier in this Financial Reviewfor additional information on management’s evaluation of the adequacy of theallowance for loan losses.

Management expects the loan loss provision for 2011 will be approximately $47 million to $57 million. This estimate reflects management’s expectationthat: (1) future declines in collateral values will be moderate as the economycontinues to improve and pricing stabilizes throughout 2011 and (2) new nonperforming loans, specifically new nonperforming commercial land anddevelopment (“CL&D”) loans at Vision Bank, will continue to decline in 2011.As discussed within the remainder of the credit experience section, VisionBank’s performing CL&D loan portfolio has declined significantly over the pastthree years. This estimated range could change significantly as circumstancesfor individual loans and economic conditions change.

A year ago, management projected the provision for loan losses would be $45million to $55 million in 2010. As discussed throughout the remainder of this“Credit Experience” section, the primary reasons that the provision for loanlosses was greater than management’s projection were declines in collateralvalues for those loans that are collateral dependent and higher than anticipatednew nonperforming loans. The table below provides a summary of the loan lossexperience over the past five years:

Table 15 – Summary of Loan Loss Experience

(In thousands) 2010 2009 2008 2007 2006

Average loans(net of unearnedinterest) $4,642,478 $4,594,436 $4,354,520 $4,011,307 $3,357,278

Allowance for loan losses:

Beginning balance 116,717 100,088 87,102 70,500 69,694

Charge-offs:Commercial, financial

and agricultural 8,484 10,047 2,953 4,170 853

Real estate – construction 23,308 21,956 34,052 7,899 718

Real estate –residential 18,401 11,765 12,600 5,785 1,915

Real estate –commercial 7,748 5,662 4,126 1,899 556

Consumer 8,373 9,583 9,181 8,020 6,673

Leases — 9 4 3 57

Total charge-offs 66,314 59,022 62,916 27,776 10,772

Recoveries:Commercial, financial

and agricultural $ 1,237 $ 1,010 $ 861 $ 1,011 $ 842

Real estate –construction 813 1,322 137 180 —

Real estate –residential 1,429 1,723 1,128 718 1,017

Real estate –commercial 850 771 451 560 1,646

Consumer 1,763 2,001 2,807 3,035 3,198

Leases — 3 31 64 150

Total recoveries 6,092 6,830 5,415 5,568 6,853

Net charge-offs 60,222 52,192 57,501 22,208 3,919

Provision chargedto earnings 64,902 68,821 70,487 29,476 3,927

Allowance for loanlosses of acquired bank — — — 9,334 798

Ending balance $ 121,397 $ 116,717 $ 100,088 $ 87,102 $ 70,500

Ratio of net charge-offs to average loans 1.30% 1.14% 1.32% 0.55% 0.12%

Ratio of allowance for loan losses to end ofyear loans, net ofunearned interest 2.57% 2.52% 2.23% 2.06% 2.03%


The following table summarizes the allocation of the allowance for loan lossesfor the past five years:

Table 16 – Allocation of Allowance for Loan Losses

December 31, 2010 2009 2008 2007 2006Percent of Percent of Percent of Percent of Percent ofLoans Per Loans Per Loans Per Loans Per Loans Per

(In thousands) Allowance Category Allowance Category Allowance Category Allowance Category Allowance Category

Commercial,financialandagricultural $ 13,584 15.59% $ 14,725 16.19% $ 14,286 15.90% $14,557 14.52% $16,985 15.75%

Real estate –construction 46,194 8.59% 47,521 10.68% 24,794 11.88% 20,007 12.70% 4,425 6.75%

Real estate –residential 25,845 19,753 33.51% 22,077 34.74% 15,997 35.06% 10,402 37.36%

Real estate –commercial 28,515 25.92% 23,970 24.37% 15,498 23.06% 15,989 23.51% 17,097 24.56%

Consumer 7,228 14.09% 10,713 15.18% 23,391 14.33% 20,477 14.05% 21,285 15.29%

Leases 31 0.06% 35 0.07% 42 0.09% 75 0.16% 306 0.29%

Total $121,397 100.00% $116,717 100.00% $100,088 100.00% $87,102 100.00% $70,500 100.00%

As of December 31, 2010, Park had no significant concentrations of loans toborrowers engaged in the same or similar industries nor did Park have anyloans to foreign governments.

Nonperforming Assets: Nonperforming loans include: 1) loans whose interest is accounted for on a nonaccrual basis; 2) renegotiated loans not currently on nonaccrual; and 3) loans which are contractually past due 90 days or more as to principal or interest payments but whose interest continuesto accrue. Management’s policy is to place all renegotiated loans (troubled debt restructurings) on nonaccrual status. At December 31, 2010, there were$80.7 million of troubled debt restructurings included in nonaccrual loantotals. Many of these troubled debt restructurings are performing under therenegotiated terms. Management will continue to review the renegotiated loans and may determine it appropriate to move certain of these loans back to accrual status in the second half of 2011 if the loans perform in accordancewith their restructured terms. Other real estate owned results from taking possession of property used as collateral for a defaulted loan.

The following is a summary of Park National Corporation’s nonaccrual loans,renegotiated loans not currently on nonaccrual, loans past due 90 days or moreand still accruing and other real estate owned for the last five years:

Table 17 – Nonperforming AssetsDecember 31,(In thousands)

2010 2009 2008 2007 2006

Nonaccrual loans $289,268 $233,544 $159,512 $101,128 $16,004Renegotiated loans — 142 2,845 2,804 9,113Loans past due 90 days

or more 3,590 14,773 5,421 4,545 7,832

Total nonperforming loans 292,858 248,459 167,778 108,477 32,949

Other real estate owned 44,325 41,240 25,848 13,443 3,351

Total nonperforming assets $337,183 $289,699 $193,626 $121,920 $36,300

Percentage of nonperforming loans to loans 6.19% 5.35% 3.74% 2.57% 0.95%

Percentage of nonperforming assets to loans 7.12% 6.24% 4.31% 2.89% 1.04%

Percentage of nonperforming assetsto total assets 4.62% 4.11% 2.74% 1.88% 0.66%

Tax equivalent interest income from loans for 2010 was $269.3 million. Park has forgone interest income of approximately $19.5 million from non -accrual loans as of December 31, 2010 that would have been earned during the year if all loans had performed in accordance with their original terms.

Vision Bank nonperforming assets for the last four years were as follows:

Table 18 – Vision Bank – Nonperforming AssetsDecember 31,(In thousands)

2010 2009 2008 2007

Nonaccrual loans $171,453 $148,347 $91,206 $63,015Renegotiated loans — — 2,845 —Loans past due 90 days or more 364 11,277 644 457

Total nonperforming loans 171,817 159,624 94,695 63,472

Other real estate owned 35,940 35,203 19,699 7,074

Total nonperforming assets $207,757 $194,827 $114,394 $70,546

Percentage of nonperforming loans to loans 26.82% 23.58% 13.71% 9.93%

Percentage of nonperforming assets to loans 32.43% 28.78% 16.57% 11.04%

Percentage of nonperforming assetsto total assets 25.71% 21.70% 12.47% 8.24%

Nonperforming assets for Park, excluding Vision Bank for the last five yearswere as follows:

Table 19 – Park Excluding Vision Bank – Nonperforming AssetsDecember 31,(In thousands)

2010 2009 2008 2007 2006

Nonaccrual loans $117,815 $85,197 $68,306 $38,113 $16,004Renegotiated loans — 142 — 2,804 9,113Loans past due 90 days

or more 3,226 3,496 4,777 4,088 7,832

Total nonperforming loans 121,041 88,835 73,083 45,005 32,949

Other real estate owned 8,385 6,037 6,149 6,369 3,351

Total nonperforming assets $129,426 $94,872 $79,232 $51,374 $36,300

Percentage of nonperforming loans to loans 2.96% 2.24% 1.92% 1.26% 0.95%

Percentage of nonperforming assets to loans 3.16% 2.39% 2.08% 1.43% 1.04%

Percentage of nonperforming assetsto total assets 1.99% 1.54% 1.29% 0.91% 0.66%

Economic conditions began deteriorating during the second half of 2007 and continued throughout 2008 and 2009. While conditions across the U.S.improved slightly in 2010, the economic recovery continues to be a slowprocess. Park and many other financial institutions throughout the countryexperienced a sharp increase in net loan charge-offs and nonperforming loans over the past three years. Financial institutions operating in Florida andAlabama (including Vision Bank) have been particularly hard hit by the severerecession as the demand for real estate and the price of real estate have sharplydecreased.

Park had $238.7 million of commercial loans included on the watch list ofpotential problem commercial loans at December 31, 2010 compared to$277.7 million at year-end 2009 and $243.2 million at year-end 2008.Commercial loans include: (1) commercial, financial and agricultural loans;(2) commercial real estate loans; (3) certain real estate construction loans;and (4) certain residential real estate loans. Park’s watch list includes all criticized and classified commercial loans, defined by Park as loans ratedspecial mention or worse, less those commercial loans currently considered to be impaired. As a percentage of year-end total loans, Park’s watch list ofpotential problem loans was 5.0% in 2010, 6.0% in 2009 and 5.4% in 2008.The existing conditions of these loans do not warrant classification as non -accrual. However, these loans have shown some weakness and managementperforms additional analyses regarding a borrower’s ability to comply withpayment terms for watch list loans.

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Park’s allowance for loan losses includes an allocation for loans specificallyidentified as impaired under GAAP. At December 31, 2010, loans considered tobe impaired consisted substantially of commercial loans graded as “doubtful”and placed on non-accrual status. During 2009, management made a change in accounting estimate (as defined under GAAP) for the estimation of allowancefor loan losses. Based on escalating losses within the Vision Bank CL&D loanportfolio, management determined that it was necessary to segregate thisportion of the portfolio for both impaired CL&D credits, as well as performingCL&D loans. Management continued to utilize this methodology throughout2010. From the date Park acquired Vision (March 9, 2007) through December31, 2010, Vision had cumulative charge-offs within the CL&D loan portfolio of$71.0 million. Additionally, at December 31, 2010, management had estab-lished a specific reserve of $23.6 million related to those CL&D loans at VisionBank that are deemed to be impaired. The aggregate of charge-offs in the CL&Dloan portfolio since acquisition, along with the specific reserves on impairedCL&D loans at December 31, 2010, totaled $94.6 million, compared to $73.0million at December 31, 2009. Total provision expense for Vision Bank sincethe date of acquisition through December 31, 2010 has been $150.0 million,compared to $110.8 million through December 31, 2009. The magnitude of thelosses coming from the CL&D loan portfolio at Vision, along with the continuedrun-off of performing CL&D loans, led to the change in accounting estimatemade by management during 2009. The following table summarizes the CL&Dloan portfolio at Vision Bank:

Table 20 – Vision Bank CL&D Loan Portfolio

Year Ended December 31(In thousands) 2010 2009 2008

CL&D loans, period end $170,989 $218,263 $251,443

Performing CL&D loans, period end 84,498 132,380 191,712

Impaired CL&D loans 86,491 85,883 59,731

Specific reserve on impaired CL&D loans 23,585 21,802 3,134

Cumulative charge-offs on impaired CL&D loans 28,652 24,931 18,839

Specific reserve plus cumulative charge-offs $ 52,237 $ 46,733 $ 21,973

Specific reserves plus net charge-offs as apercentage of impaired CL&D loans pluscumulative charge-offs 45.4% 42.2% 28.0%

At December 31, 2010, loans considered to be impaired under GAAP totaled$250.9 million, after charge-offs of $53.6 million. At December 31, 2009,impaired loans totaled $201.1 million, after charge-offs of $43.9 million. The specific allowance for loan losses related to these impaired loans was$43.5 million at December 31, 2010 and $36.7 million at December 31, 2009.At December 31, 2010, the impaired loans and related specific reserves aresummarized as follows:

Table 21 – Summary of Impaired Commercial Loans and Specific Reserves

December 31, 2010(In thousands) Principal Balance Specific Reserve

Impaired loan type:Vision Bank impaired CL&D loans $ 86,491 $23,585

Other impaired commercial loans 159,599 19,050

Vision other impaired commercial less than $250,000 4,843 824

Total $250,933 $43,459

The specific reserves discussed above are typically based on management’s best estimate of the fair value of collateral securing these loans or based onprojected future cash flows from the sale of the underlying collateral and payments from borrowers and guarantors. The amount ultimately charged-off for these loans may be different from the specific reserve as the ultimate liquidation of the collateral and/or projected cash flows may be for amountsdifferent from management’s estimates.

We have listed in the table below the year-end 2009 and the quarterly and year-end 2010 information pertaining to the provision for loan losses, net loan charge-offs, nonperforming loans and the allowance for loan losses:

Table 22 – Additional Allowance for Loan Losses Data

Provision Allowancefor Loan Net Loan Nonperforming for Loan

(In thousands) Losses Charge-Offs Loans Losses

Year-end 2009 $68,821 $52,192 $248,459 $116,717

March 2010 $16,550 $13,593 $242,411 $119,674

June 2010 13,250 12,248 255,137 120,676

September 2010 14,654 17,925 247,894 117,405

December 2010 20,448 16,456 292,858 121,397

Year-end 2010 $64,902 $60,222 $292,858 $121,397

When determining the quarterly loan loss provision, Park reviews the grades ofcommercial loans. These loans are graded from 1 to 8. A grade of 1 indicateslittle or no credit risk and a grade of 8 is considered a loss. Commercial loanswith grades of 1 to 4 (pass-rated) are considered to be of acceptable creditrisk. Commercial loans graded a 5 (special mention) are considered to bewatch list credits and a higher loan loss reserve percentage is allocated to theseloans. Commercial loans graded 6 (substandard), also considered watch listcredits, are considered to represent higher credit risk and, as a result, a higherloan loss reserve percentage is allocated to these loans. Generally, commercialloans that are graded a 6 are considered for partial charge-off. Commercialloans that are graded a 7 (doubtful) are shown as nonperforming and Parkgenerally charges these loans down to their fair value by taking a partial charge-off or recording a specific reserve. Any commercial loan graded an 8 (loss) is completely charged-off.

As of December 31, 2010, management had taken partial charge-offs ofapproximately $53.6 million ($37.3 million for Vision Bank) related to the$250.9 million of commercial loans considered to be impaired, compared to charge-offs of approximately $43.9 million ($30.2 million for Vision Bank)related to the $201.1 million of impaired commercial loans at December 31,2009. Historically, Park’s management has been quick to recognize charge-offson problem loans. However, there is a higher level of uncertainty when valuingcollateral or projecting cash flows in Vision Bank’s Florida and Alabamamarkets due to the illiquid nature of the collateral. In April 2009, Park engaged a third-party specialist to assist in the resolution of impaired loans atVision Bank. Management is pleased with the success this third-party specialistexperienced in the second half of 2009 and throughout 2010, as they havehelped maximize the value of the impaired loans at Vision Bank. We expect tocontinue utilizing this third-party specialist through 2011 and thereafter, untilsuch point in time that Vision Bank’s impaired loan portfolio shows sustainedimprovement.

A significant portion of Park’s allowance for loan losses is allocated to commercial loans classified as “special mention” or “substandard.” “Specialmention” loans are loans that have potential weaknesses that may result in lossexposure to Park. “Substandard” loans are those that exhibit a well definedweakness, jeopardizing repayment of the loan, resulting in a higher probabilitythat Park will suffer a loss on the loan unless the weakness is corrected. As previously discussed, during 2009, management segregated the Vision BankCL&D loans from other commercial loans that are still accruing. The VisionCL&D loans that are still accruing at December 31, 2010 totaled $84.5 million

defined as charge-offs plus changes in specific reserves, on CL&D loans for the last 36 months was an annual rate of 12.16%. Management has allocated anallowance for loan losses to the $84.5 million of accruing CL&D loans based onthis historical loss experience, judgmentally increased to cover approximately1.25 years of probable incurred losses, for a total reserve of $12.6 million or

compared to $132.4 million at December 31, 2009. Park’s loss experience,


14.92%. Further, we have allocated 14.92% to the $84.5 million of CL&D loans,regardless of the current loan grade, as this portion of the loan portfolio hasexperienced significant declines in collateral values, and thus if managementdetermines that borrowers are unable to pay in accordance with the contractualterms of the loan agreement, significant specific reserves have typically beennecessary. Park’s 36-month loss experience, defined as charge-offs pluschanges in specific reserves, within the remaining commercial loan portfolio(excluding Vision Bank’s CL&D loans) has been 1.13% of the principal balanceof these loans. Park’s management believes it is appropriate to cover approxi-mately 1.5 years worth of probable incurred losses within the other commercialloan portfolio, thus the total reserve for loan losses is $43.6 million or 1.77% of the outstanding principal balance of other accruing commercial loans atDecember 31, 2010. The overall reserve of 1.77% for other accruing commer-cial loans breaks down as follows: pass-rated commercial loans are reserved at 1.18%; special mention commercial loans are reserved at 4.16%; and sub-standard commercial loans are reserved at 12.48%.

Generally, consumer loans are not individually graded. Consumer loans include:(1) mortgage and installment loans included in the construction real estatesegment of the loan portfolio; (2) mortgage, home equity lines of credit(HELOC), and installment loans included in the residential real estate segmentof the loan portfolio; and (3) all loans included in the consumer segment of theloan portfolio. The amount of loan loss reserve assigned to these loans is basedon historical loss experience over the past 36 months, judgmentally increasedto cover approximately 1.5 years of probable incurred losses.

The judgmental increases discussed above incorporates management’s evaluation of the impact of environmental qualitative factors which pose additional risks and assigns a component of the allowance for loan losses in consideration of these factors. Such environmental factors include: nationaland local economic trends and conditions; experience, ability and depth oflending management and staff; effects of any changes in lending policies andprocedures; levels of, and trends in, consumer bankruptcies, delinquencies,impaired loans and charge-offs and recoveries. The determination of this component of the allowance for loan losses requires considerable managementjudgment. As always, management is working to address weaknesses in thoseloans that may result in future loss. Actual loss experience may be more or lessthan the amount allocated.

CAPITAL RESOURCESLiquidity and Interest Rate Sensitivity Management: Park’s objective inmanaging its liquidity is to maintain the ability to continuously meet the cashflow needs of customers, such as borrowings or deposit withdrawals, while atthe same time seeking higher yields from longer-term lending and investingactivities.

Cash and cash equivalents decreased by $25.3 million during 2010 to $133.8million at year-end. Cash provided by operating activities was $126.1 million in2010, $72.3 million in 2009 and $91.1 million in 2008. Net income (adjustedfor the goodwill impairment charge in 2008) was the primary source of cashfor operating activities during each year. The goodwill impairment charge of $55 million in 2008 did not impact cash or cash provided by operating activities.

Cash used in investing activities was $352.1 million in 2010, $5.3 million in2009 and $635.0 million in 2008. Investment security transactions are themajor use or source of cash in investing activities. Proceeds from the sale,repayment or maturity of securities provide cash and purchases of securitiesuse cash. Net security transactions used cash of $187.7 million in 2010, pro-vided cash of $202.6 million in 2009 and used cash of $304.8 million in 2008.Another major use or source of cash in investing activities is the net increase or decrease in the loan portfolio. Cash used by the net increase in the loan portfolio, including proceeds from the sale of loans, was $152.5 million in2010, $199.9 million in 2009 and $351.3 million in 2008.

Cash provided by financing activities was $200.6 million in 2010 and $521.8million in 2008. For 2009, financing activities used cash of $79.2 million. A major source of cash for financing activities is the net change in deposits. In 2010, deposits decreased and used $92.6 million of cash. In 2009 and 2008,deposits increased and provided cash of $426.3 million and $322.5 million,respectively. Another major source of cash for financing activities is short-termborrowings and long-term debt. In 2010, net short-term borrowings provided$339.5 million in cash and net long-term borrowings used $17.6 million incash. In 2009, net short-term borrowings used $335.0 million in cash and netlong-term borrowings used $201.2 million in cash. In 2008, net short-termborrowings used $100.1 million in cash and net long-term borrowings pro-vided $265.1 million in cash. Park’s management generated cash in both 2010and 2009 from the sale of common stock previously held as treasury shares.The sale of common stock in 2010 provided cash of $33.5 million in 2010 and$53.5 million in 2009. Additionally, $35.3 million of cash was provided in 2009from the issuance of subordinated notes and in 2008, cash of $100 million wasprovided from the issuance of Series A Preferred Shares.

Funds are available from a number of sources, including the securities portfolio, the core deposit base, Federal Home Loan Bank borrowings and thecapability to securitize or package loans for sale. The present funding sourcesprovide more than adequate liquidity for Park to meet its cash flow needs.

The following table shows interest rate sensitivity data for five different timeintervals as of December 31, 2010:

Table 23 – Interest Rate Sensitivity0-3 3-12 1-3 3-5 Over 5

(In thousands) Months Months Years Years Years Total

Interest earning assets:Investment

securities (1) $ 208,588 $ 476,738 $ 510,001 $ 259,940 $ 584,524 $2,039,791

Money marketinstruments 24,722 — — — — 24,722

Loans (1) 1,387,774 1,550,775 1,420,010 235,936 138,190 4,732,685

Total interest earning assets 1,621,084 2,027,513 1,930,011 495,876 722,714 6,797,198

Interest bearing liabilities:Interest bearing

transactionaccounts (2) 665,726 — 617,432 — — 1,283,158

Savings accounts (2) 214,298 — 684,990 — — 899,288

Time deposits 566,761 857,573 404,053 143,147 2,370 1,973,904

Other 1,351 — — — — 1,351

Total deposits 1,448,136 857,573 1,706,475 143,147 2,370 4,157,701

Short-term borrowings $ 663,669 $ — $ — $ — $ — $ 663,669

Long-term debt — 16,460 16,000 500 603,773 636,733

Subordinateddebentures/notes 15,000 — 25,000 35,250 — 75,250

Total interest bearingliabilities 2,126,805 874,033 1,747,475 178,897 606,143 5,533,353

Interest rate sensitivity gap (505,721) 1,153,480 182,536 316,979 116,571 1,263,845

Cumulative rate sensitivity gap (505,721) 647,759 830,295 1,147,274 1,263,845

Cumulative gap as a percentage of total interestearning assets –7.44% 9.53% 12.22% 16.88% 18.59%

(1) Investment securities and loans that are subject to prepayment are shown in the table by theearlier of their repricing date or their expected repayment dates and not by their contractual maturity. Nonaccrual loans of $289.3 million are included within the three to twelve month maturity.

(2) Management considers interest bearing transaction accounts and savings accounts to be core deposits and, therefore, not as rate sensitive as other deposit accounts and borrowed money. Accordingly, only 52% of interest bearing transaction accounts and 24% of savings accounts are considered to reprice within one year. If all of the interest bearing checking accounts andsavings accounts were considered to reprice within one year, the one year cumulative gapwould change from a positive 9.53% to a negative 9.63%.

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The interest rate sensitivity gap analysis provides a good overall picture ofPark’s static interest rate risk position. Park’s policy is that the twelve monthcumulative gap position should not exceed fifteen percent of interest earningassets for three consecutive quarters. At December 31, 2010, the cumulativeinterest earning assets maturing or repricing within twelve months were $3,649 million compared to the cumulative interest bearing liabilities maturingor repricing within twelve months of $3,001 million. For the twelve-monthcumulative gap position, rate sensitive assets exceed rate sensitive liabilities by $648 million or 9.5% of interest earning assets.

A positive twelve month cumulative rate sensitivity gap (assets exceed liabilities)would suggest that Park’s net interest margin would increase if interest rateswere to increase. Conversely, a negative twelve month cumulative rate sensitivitygap would suggest that Park’s net interest margin would decrease if interestrates were to decrease. However, the usefulness of the interest sensitivity gapanalysis as a forecasting tool in projecting net interest income is limited. Thegap analysis does not consider the magnitude, timing or frequency by whichassets or liabilities will reprice during a period and also contains assumptionsas to the repricing of transaction and savings accounts that may not prove to be correct.

A year ago, the cumulative twelve month interest rate sensitivity gap position atyear-end 2009 was a positive $525 million or 8.0% of interest earning assets.The percentage of interest earning assets maturing or repricing within one year was 53.7% at year-end 2010 compared to 51.7% at year-end 2009. Thepercentage of interest bearing liabilities maturing or repricing within one yearwas 54.2% at year-end 2010 compared to 53.4% at year-end 2009.

Management supplements the interest rate sensitivity gap analysis with periodicsimulations of balance sheet sensitivity under various interest rate and what-ifscenarios to better forecast and manage the net interest margin. Park’s management uses an earnings simulation model to analyze net interest incomesensitivity to movements in interest rates. This model is based on actual cashflows and repricing characteristics for balance sheet instruments and incorpo-rates market-based assumptions regarding the impact of changing interest rateson the prepayment rate of certain assets and liabilities. This model also includesmanagement’s projections for activity levels of various balance sheet instru-ments and noninterest fee income and operating expense. Assumptions basedon the historical behavior of deposit rates and balances in relation to changesin interest rates are also incorporated into this earnings simulation model.These assumptions are inherently uncertain and, as a result, the model cannotprecisely measure net interest income and net income. Actual results will differfrom simulated results due to timing, magnitude, and frequency of interest ratechanges as well as changes in market conditions and management strategies.

Management uses a 50 basis point change in market interest rates per quarterfor a total of 200 basis points per year in evaluating the impact of changinginterest rates on net interest income and net income over a twelve monthhorizon. At December 31, 2010, the earnings simulation model projected thatnet income would increase by 2.4% using a rising interest rate scenario anddecrease by 1.4% using a declining interest rate scenario over the next year. At December 31, 2009, the earnings simulation model projected that netincome would increase by 2.2% using a rising interest rate scenario anddecrease by 0.1% using a declining interest rate scenario over the next year and at December 31, 2008, the earnings simulation model projected that netincome would increase by 0.6% using a rising interest rate scenario anddecrease by 3.3% using a declining interest rate scenario over the next year.Consistently, over the past several years, Park’s earnings simulation model hasprojected that changes in interest rates would have only a small impact on netincome and the net interest margin. Park’s net interest margin has been rela-tively stable over the past three years at 4.26% in 2010, 4.22% in 2009, and4.16% in 2008. A major goal of Park’s asset/liability committee is to maintain a relatively stable net interest margin regardless of the level of interest rates.Management expects that the net interest margin will be approximately 4.10%to 4.20% in 2011.

CONTRACTUAL OBLIGATIONSIn the ordinary course of operations, Park enters into certain contractual obligations. Such obligations include the funding of operations through debtissuances as well as leases for premises. The following table summarizes Park’ssignificant and determinable obligations by payment date at December 31,2010.

Further discussion of the nature of each specified obligation is included in thereferenced Note to the Consolidated Financial Statements.

Table 24 – Contractual ObligationsDecember 31, 2010 Payments Due In

0–1 1–3 3–5 Over 5(In thousands) Note Years Years Years Years Total

Deposits withoutstated maturity 8 $3,121,517 $ — $ — $ — $3,121,517

Certificates of deposit 8 1,421,463 406,924 143,147 2,369 1,973,903

Short-term borrowings 9 663,669 — — — 663,669

Long-term debt 10 16,523 16,143 668 603,399 636,733

Subordinated debentures/notes 11 — — — 75,250 75,250

Operating leases 7 1,987 3,415 2,577 4,103 12,082

Purchase obligations 2,310 — — — 2,310

Total contractual obligations $5,227,469 $426,482 $146,392 $685,121 $6,485,464

The Corporation’s operating lease obligations represent short-term and long-term lease and rental payments for facilities and equipment. Purchaseobligations represent obligations under agreements to purchase goods or services that are enforceable and legally binding on the Corporation.

Commitments, Contingent Liabilities, and Off-Balance SheetArrangements: In order to meet the financing needs of its customers, the Corporation issues loan commitments and standby letters of credit. At December 31, 2010, the Corporation had $716.6 million of loan commit-ments for commercial, commercial real estate, and residential real estate loansand had $24.5 million of standby letters of credit. At December 31, 2009, theCorporation had $955.3 million of loan commitments for commercial, com-mercial real estate and residential real estate loans and had $36.3 million ofstandby letters of credit.

Commitments to extend credit under loan commitments and standby letters of credit do not necessarily represent future cash requirements. These commitments often expire without being drawn upon. However, all of the loan commitments and standby letters of credit are permitted to be drawn upon in 2011. See Note 18 of the Notes to Consolidated Financial Statements for additional information on loan commitments and standby letters of credit.

The Corporation did not have any unrecorded significant contingent liabilities at December 31, 2010.

Capital: Park’s primary means of maintaining capital adequacy is through net retained earnings. At December 31, 2010, the Corporation’s stockholders’equity was $745.8 million, compared to $717.3 million at December 31, 2009.Stockholders’ equity at December 31, 2010 was 10.22% of total assets com-pared to 10.19% of total assets at December 31, 2009. During 2010, Parkissued an aggregate of 509,184 common shares previously held as treasuryshares, at a weighted average purchase price per share of $67.99, for net proceeds of $33.5 million.

Tangible stockholders’ equity (stockholders’ equity less goodwill and otherintangible assets) was $667.4 million at December 31, 2010 and was $635.5million at December 31, 2009. At December 31, 2010, tangible stockholders’equity was 9.24% of total tangible assets (total assets less goodwill and otherintangible assets), compared to 9.13% at December 31, 2009.


Tangible common equity (tangible stockholders’ equity less $100 millionrelated to the Series A Preferred Shares and warrant issued to the U.S. Treasury)was $567.4 million at December 31, 2010 compared to $535.5 million atDecember 31, 2009. At December 31, 2010, tangible common equity was7.86% of tangible assets, compared to 7.69% at December 31, 2009.

Net income for 2010 and 2009 was $74.2 million and was $13.7 million in2008. The net income for 2008 includes a goodwill impairment charge atVision Bank of $55.0 million. Excluding the goodwill impairment charge atVision Bank, net income for 2008 would have been $68.7 million.

Preferred stock dividends paid as a result of Park’s participation in the CPPwere $5.0 million in both 2010 and 2009, and $124,000 in 2008. Accretion ofthe discount on the Series A Preferred Shares was $807,000 in 2010, $762,000in 2009 and $18,000 in 2008. Income available to common shareholders is netincome less the preferred stock dividends and accretion. Income available tocommon shareholders was $68.4 million for both 2010 and 2009, and $13.6million in 2008 ($68.6 million excluding the goodwill impairment charge).

Cash dividends declared for common shares were $57.1 million in 2010, $53.6 million in 2009, and $52.6 million in 2008. On a per share basis, thecash dividends declared were $3.76 per share in both 2010 and 2009, and$3.77 per share in 2008.

Park did not purchase any treasury stock during 2010, 2009 or 2008. Treasurystock had a balance in stockholders’ equity of $77.7 million at December 31,2010, $125.3 million at December 31, 2009, and $207.7 million at December31, 2008. During 2010, Park issued 437,200 shares of common stock as aresult of the exercise of warrants that were originally issued in 2009. Alsoduring 2010, Park issued 71,984 shares of common stock resulting in a total of 509,184 shares of common stock issued in 2010, which reduced the amountof treasury stock available. The issuance of these shares out of treasury stockreduced the value of treasury stock by the weighted average cost of $47.0million. Additionally, the value of treasury stock was reduced by $634,000 as a result of the issuance of an aggregate of 7,020 common shares to theBoard of Directors of Park and Park’s bank subsidiaries (and their divisions).During 2009, Park issued 904,072 shares of common stock out of treasurystock. The issuance of these shares out of treasury stock during 2009 resultedin a reduction in treasury stock by the weighted average cost of $81.7 million.Additionally, the value of treasury stock was reduced by $634,000 as a result ofthe issuance of an aggregate of 7,020 common shares to directors of the Boardof Directors of Park and Park’s bank subsidiaries (and their divisions).

Park did not issue any new common shares (that were not already held in treasury stock, as discussed above) in either 2010 or 2009. However, in 2010,Park recorded $0.2 million for the warrants that were issued as part of theissuance of the 71,984 common shares discussed above and also recorded areduction of $1.1 million as warrants were either exercised or cancelled during2010. In 2009, Park recorded $1.1 million for the common stock warrants thatwere issued as part of the issuance of the 904,072 shares discussed above. In2008, Park recorded $4.3 million for the common stock warrant as part of the issuance of $100 million of Series A Preferred Shares (see Note 1 and Note25 of the Notes to Consolidated Financial Statements). Common stock had abalance in stockholders’ equity of $301.2 million at each of the years endedDecember 31, 2010, 2009, and 2008.

Accumulated other comprehensive income (loss) was ($1.9) million atDecember 31, 2010 compared to $15.7 million at December 31, 2009 and$10.6 million at December 31, 2008. Long-term interest rates declined signifi-cantly in the fourth quarter of 2007, continued declining in 2008 and remainedlow throughout 2009. In 2010, long-term interest rates remained low throughthe first three quarters, but then increased fairly significantly during the fourthquarter. The net unrealized gain from investment securities was $31.6 million atDecember 31, 2008. During the 2009 year, the change in net unrealized gains,net of tax, was an increase of $3.3 million and Park realized after-tax gains of$4.8 million, resulting in an unrealized gain of $30.1 million at December 31,2009. During the 2010 year, the change in net unrealized gains, net of tax, wasa loss of $7.3 million and Park realized after-tax gains of $7.7 million, resultingin an unrealized gain of $15.1 million at December 31, 2010. In addition, Parkrecognized other comprehensive loss of $2.4 million related to the change inPension Plan assets and benefit obligations in 2010 compared to income of$6.3 million in 2009 and a loss of $16.2 million in 2008. Finally, Park has recognized other comprehensive loss of $0.1 million in 2010 due to the mark-to-market of a cash flow hedge at December 31, 2010 compared to a $0.3million increase in comprehensive income for the year ended December 31,2009 and a $1.3 million comprehensive loss for 2008.

Financial institution regulators have established guidelines for minimum capitalratios for banks, thrifts, and bank holding companies. Park’s accumulated othercomprehensive income (loss) is not included in computing regulatory capital.The minimum leverage capital ratio (defined as stockholders’ equity less intangible assets divided by tangible assets) is 4% and the well capitalized ratiois greater than or equal to 5%. Park’s leverage ratio was 9.77% at December31, 2010 and exceeded the minimum capital required by $401 million. Theminimum Tier 1 risk-based capital ratio (defined as leverage capital divided by risk-adjusted assets) is 4% and the well capitalized ratio is greater than orequal to 6%. Park’s Tier 1 risk-based capital ratio was 13.52% at December 31, 2010 and exceeded the minimum capital required by $478 million. Theminimum total risk-based capital ratio (defined as leverage capital plus supple-mental capital divided by risk-adjusted assets) is 8% and the well capitalizedratio is greater than or equal to 10%. Park’s total risk-based capital ratio was15.98% at December 31, 2010 and exceeded the minimum capital required by $401 million.

At December 31, 2010, Park exceeded the well capitalized regulatory guidelinesfor bank holding companies. Park exceeded the well capitalized leverage capitalratio of 5% by $331 million, exceeded the well capitalized Tier 1 risk-basedcapital ratio of 6% by $377 million and exceeded the well capitalized total risk-based capital ratio of 10% by $300 million.

The two financial institution subsidiaries of Park each met the well capitalized ratio guidelines at December 31, 2010. See Note 22 of the Notes to Consolidated Financial Statements for the capital ratios for Park and its two financial institution subsidiaries.

Effects of Inflation: Balance sheets of financial institutions typically containassets and liabilities that are monetary in nature and, therefore, differ greatlyfrom most commercial and industrial companies which have significant investments in premises, equipment and inventory. During periods of inflation,financial institutions that are in a net positive monetary position will experiencea decline in purchasing power, which does have an impact on growth. Anothersignificant effect on internal equity growth is other expenses, which tend to riseduring periods of inflation.

Management believes the most significant impact on financial results is theCorporation’s ability to align its asset/liability management program to react to changes in interest rates.

45


46

SELECTED FINANCIAL DATAThe following table summarizes five-year financial information.

Table 25 – Consolidated Five-Year Selected Financial DataDecember 31,(Dollars in thousands, 2010 2009 2008 2007 2006except per share data)

Results of Operations:Interest income $ 345,517 $ 367,690 $ 391,339 $ 401,824 $ 334,559Interest expense 71,473 94,199 135,466 167,147 121,315Net interest income 274,044 273,491 255,873 234,677 213,244Provision for loan

losses 64,902 68,821 70,487 29,476 3,927Net interest income

after provision forloan losses 209,142 204,670 185,386 205,201 209,317

Net gains on saleof securities 11,864 7,340 1,115 — 97

Noninterest income 65,632 73,850 83,719 71,640 64,665Noninterest expense 187,107 188,725 234,501 224,164 141,002Net income 74,217 74,192 13,708 22,707 94,091Net income available

to commonshareholders 68,410 68,430 13,566 22,707 94,091

Per common share:Net income per common

share – basic 4.51 4.82 0.97 1.60 6.75Net income per common

share – diluted 4.51 4.82 0.97 1.60 6.74Cash dividends declared 3.76 3.76 3.77 3.73 3.69

Average Balances:Loans 4,642,478 4,594,436 4,354,520 4,011,307 3,357,278Investment securities 1,746,356 1,877,303 1,801,299 1,596,205 1,610,639Money market

instruments and other 93,009 52,658 15,502 17,838 8,723

Total earning assets 6,481,843 6,524,397 6,171,321 5,625,350 4,976,640

Noninterest bearing deposits 907,514 818,243 739,993 697,247 662,077

Interest bearing deposits 4,274,501 4,232,391 3,862,780 3,706,231 3,162,867

Total deposits 5,182,015 5,050,634 4,602,773 4,403,478 3,824,944

Short-term borrowings $ 300,939 $ 419,733 $ 609,219 $ 494,160 $ 375,332Long-term debt 725,356 780,435 835,522 568,575 553,307Stockholders’ equity 746,555 675,314 567,965 618,758 545,074Common stockholders’

equity 649,682 579,224 565,612 618,758 545,074Total assets 7,042,750 7,035,531 6,708,086 6,169,156 5,380,623

Ratios:Return on average

assets (x) 0.97% 0.97% 0.20% 0.37% 1.75%Return on average

common equity (x) 10.53% 11.81% 2.40% 3.67% 17.26%Net interest margin (1) 4.26% 4.22% 4.16% 4.20% 4.33%Dividend payout ratio 83.43% 78.27% 387.79% 232.35% 54.65%Average stockholders’

equity to average total assets 10.60% 9.60% 8.47% 10.03% 10.13%

Leverage capital 9.77% 9.04% 8.36% 7.10% 9.96%Tier 1 capital 13.50% 12.45% 11.69% 10.16% 14.72%Risk-based capital 15.96% 14.89% 13.47% 11.97% 15.98%

(1) Computed on a fully taxable equivalent basis.

(x) Reported measure uses net income available to common stockholders.

The following table is a summary of selected quarterly results of operations forthe years ended December 31, 2010 and 2009. Certain quarterly amounts havebeen reclassified to conform to the year-end financial statement presentation.

Table 26 – Quarterly Financial Data

(Dollars in thousands, Three Months Endedexcept per share data) March 31 June 30 Sept. 30 Dec. 31

2010:Interest income $87,202 $87,242 $86,682 $84,391

Interest expense 19,822 18,521 17,237 15,893

Net interest income 67,380 68,721 69,445 68,498

Provision for loan losses 16,550 13,250 14,654 20,448

Gain on sale of securities 8,304 3,515 — 45

Income before income taxes 27,954 28,632 26,625 16,320

Net income 20,779 21,166 19,577 12,695

Net income availableto common shareholders 19,327 19,715 18,125 11,243

Per common share data:Net income per common

share – basic (x) 1.30 1.30 1.19 0.73

Net income per commonshare – diluted (x) 1.30 1.30 1.19 0.73

Weighted-average common stock outstanding – basic 14,882,774 15,114,846 15,272,720 15,340,427

Weighted-average common stock equivalent – diluted 14,882,774 15,114,846 15,272,720 15,352,600

2009:Interest income $93,365 $92,092 $91,868 $90,365

Interest expense 25,132 24,098 23,406 21,563

Net interest income 68,233 67,994 68,462 68,802

Provision for loan losses 12,287 15,856 14,958 25,720

Gain on sale of securities — 7,340 — —

Income before income taxes 29,294 29,084 25,617 13,140

Net income 21,390 21,307 19,199 12,296

Net income availableto common shareholders 19,950 19,866 17,759 10,855

Per common share data:Net income per common

share – basic (x) 1.43 1.42 1.25 0.74

Net income per commonshare – diluted (x) 1.43 1.42 1.25 0.74

Weighted-average common stock outstanding – basic 13,971,720 14,001,608 14,193,411 14,658,601

Weighted-average common stock equivalent – diluted 13,971,720 14,001,608 14,193,411 14,658,601

(x) Reported measure uses net income available to common shareholders.

Non-GAAP Financial Measures: Park’s management uses certain non-GAAP(generally accepted accounting principles) financial measures to evaluatePark’s performance. Specifically, management reviews (i) net income availableto common shareholders before impairment charge, (ii) net income availableto common shareholders before impairment charge per common share-diluted, (iii) return on average assets before impairment charge, (iv) return on average common equity before impairment charge, and (v) the ratio of noninterest expense excluding impairment charge to net revenue (collectively,the “adjusted performance metrics”) and has included in this annual report information relating to the adjusted performance metrics for the twelve-monthperiod ended December 31, 2008 and 2007. Management believes the adjustedperformance metrics present a more reasonable view of Park’s operating performance and ensures comparability of operating performance from period to period while eliminating the one-time non-recurring impairmentcharges. Park has provided reconciliations of the GAAP measures to theadjusted performance metrics solely for the purpose of complying with SECRegulation G and not as an indication that the adjusted performance metrics are a substitute for other measures determined by GAAP.


The following table displays net income available to common shareholders and related performance metrics after excluding the 2007 and 2008 goodwillimpairment charges related to the Vision Bank acquisition.

Table 27

December 31,(Dollars in thousands,

2010 2009 2008 2007 2006

except per share data)

Results of Operations:Net income available

to commonshareholdersexcludingimpairmentcharge (a) $68,410 $68,430 $68,552 $76,742 $94,091

Per common share:Net income per

common shareexcludingimpairmentcharge –diluted (a) 4.51 4.82 4.91 5.40 6.74

Ratios:Return on average

assets excludingimpairmentcharge (a)(b) 0.97% 0.97% 1.02% 1.24% 1.75%

Return on averagecommon equityexcludingimpairmentcharge (a)(x) 10.53% 11.81% 12.12% 12.40% 17.26%

Noninterest expenseexcludingimpairmentcharge tonet revenue (1) 54.75% 54.01% 52.59% 55.21% 50.35%

(1) Computed on a fully taxable equivalent basis.

(x) Reported measure uses net income available to common stockholders.

(a) Net income for the year has been adjusted for the impairment charge to goodwill. Net income before impairment charge equals net income for the year plus the impairment charge to goodwill of $54,986 and $54,035 for 2008 and 2007, respectively.

(b) Net income for the year available to common shareholders.

The Corporation’s common stock (symbol: PRK) is traded on the NYSE Amex.At December 31, 2010, the Corporation had 4,457 stockholders of record. Thefollowing table sets forth the high, low and closing sale prices of, and dividendsdeclared on the common stock for each quarterly period for the years endedDecember 31, 2010 and 2009, as reported by NYSE Amex.

Table 28 – Market and Dividend Information

CashDividend

Last DeclaredHigh Low Price Per Share

2010:First Quarter $ 64.70 $ 52.58 $ 62.31 $0.94

Second Quarter 70.25 61.50 65.04 0.94

Third Quarter 67.54 59.35 64.04 0.94

Fourth Quarter 74.39 62.66 72.67 0.94

2009:First Quarter $ 70.10 $ 39.90 $ 55.75 $0.94

Second Quarter 70.00 53.88 56.48 0.94

Third Quarter 66.59 54.01 58.34 0.94

Fourth Quarter 62.55 56.35 58.88 0.94

PERFORMANCE GRAPHTable 29 compares the total return performance for Park common shares with the NYSE Amex Composite Index, the NASDAQ Bank Stocks Index and the SNL Financial Bank and Thrift Index for the five-year period from December 31, 2005 to December 31, 2010. The NYSE Amex CompositeIndex is a market capitalization-weighted index of the stocks listed on NYSEAmex. The NASDAQ Bank Stocks Index is comprised of all depository institu-tions, holding com panies and other investment companies that are traded onThe NASDAQ Global Select and Global Markets. Park considers a number ofbank holding companies traded on The NASDAQ Global Select to be within its peer group. The SNL Financial Bank and Thrift Index is comprised of allpublicly traded bank and thrift stocks researched by SNL Financial.

The NYSE Amex Financial Stocks Index includes the stocks of banks, thrifts, finance companies and securities broker-dealers. Park believes that the NASDAQ Bank Stocks Index and the SNL Financial Bank and Thrift Index are more appropriate industry indices for Park to use for the five-year totalreturn performance comparison.

The total return for Park’s common shares has underperformed the total returnof the NYSE Amex Composite Index in the five-year comparison as indicated inTable 29, but outperformed both the NASDAQ Bank Stocks Index and the SNLBank and Thrift Index for the same five-year period. The annual compoundtotal return on Park’s common shares for the past five years was a negative1.7%. By comparison, the annual compound total returns for the past five yearson the NYSE Amex Composite Index, the NASDAQ Bank Stocks Index and theSNL Bank and Thrift Index were positive 8.1%, negative 7.3% and negative10.8%, respectively.

47

Inde

x Va

lue

200

180

160

140

120

100

80

60

40

20

12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10

PERIOD ENDINGIndex 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10

Park National Corporation 100.00 100.03 68.13 80.20 70.09 91.85

NYSE Amex Composite 100.00 119.94 145.36 86.56 117.36 147.40

NASDAQ Bank Stocks 100.00 113.82 91.16 71.52 59.87 68.34

SNL Bank and Thrift Index 100.00 116.85 89.10 51.24 50.55 56.44

Table 29 – Total Return Performance

M A N A G E M E N T ’ S R E P O R T O N I N T E R N A L C O N T R O LO V E R F I N A N C I A L R E P O R T I N G

To the Board of Directors and StockholdersPark National Corporation

The management of Park National Corporation (the “Corporation”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a – 15(f) and 15d – 15(f) under the SecuritiesExchange Act of 1934. The Corporation’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with U.S. generally accepted accounting principles. The Corporation’s internal control over financial reporting includes those policies and procedures that:

a.) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the Corporation and its consolidated subsidiaries;

b.) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with U.S. generally accepted accounting principles, and that receipts and expendituresof the Corporation and its consolidated subsidiaries are being made only in accordance with authorizations ofmanagement and directors of the Corporation; and

c.) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets of the Corporation and its consolidated subsidiaries that could have a material effect on the financial statements.

The Corporation’s internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are identified.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even an effective system of internal control over financial reporting will provide only reasonableassurance with respect to financial statement preparation.

With the participation of our Chairman of the Board and Chief Executive Officer, our President and our Chief Financial Officer, management evaluated the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2010, the end of the Corporation’s fiscal year. In making this assessment, management used the criteria setforth for effective internal control over financial reporting by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO) in Internal Control-Integrated Framework.

Based on our assessment under the criteria described in the preceding paragraph, management concluded that the Corporation maintained effective internal control over financial reporting as of December 31, 2010.

The Corporation’s independent registered public accounting firm, Crowe Horwath LLP, has audited the Corporation’s 2010 and 2009 consolidated financial statements included in this Annual Report and the Corporation’s internal controlover financial reporting as of December 31, 2010, and has issued their Report of Independent Registered Public Accounting Firm, which appears in this Annual Report.

C. Daniel DeLawder David L. Trautman John W. KozakChairman and Chief Executive Officer President Chief Financial Officer

48

February 28 , 2011

R E P O R T O F I N D E P E N D E N TR E G I S T E R E D P U B L I C A C C O U N T I N G F I R M

To the Board of Directors and ShareholdersPark National CorporationNewark, Ohio

We have audited the accompanying consolidated balance sheets of Park National Corporation as of December 31, 2010 and 2009and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the three years inthe period ended December 31, 2010. We also have audited Park National Corporation’s internal control over financial reportingas of December 31, 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Park National Corporation’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board

whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing therisk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based onthe assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances.We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositionsof the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparationof financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’sassets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Park National Corporation as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally acceptedin the United States of America. Also in our opinion, Park National Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control – Integrated Framework issued by the COSO.

Columbus, Ohio

49

February 28 , 2011

(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about

C O N S O L I D A T E D B A L A N C E S H E E T S

50

PARK NATIONAL CORPORATION AND SUBSIDIARIESat December 31, 2010 and 2009 (In thousands, except share and per share data)

ASSETS2010 2009

Cash and due from banks $ 109,058 $ 116,802

Money market instruments 24,722 42,289

Cash and cash equivalents 133,780 159,091

Investment securities:Securities available-for-sale, at fair value (amortized cost of $1,274,258 and

$1,241,381 at December 31, 2010 and 2009, respectively) 1,297,522 1,287,727

Securities held-to-maturity, at amortized cost (fair value of $686,114 and$523,450 at December 31, 2010 and 2009, respectively) 673,570 506,914

Other investment securities 68,699 68,919

Total investment securities 2,039,791 1,863,560

Total loans 4,732,685 4,640,432

Allowance for loan losses (121,397) (116,717)

Net loans 4,611,288 4,523,715

Other assets:Bank owned life insurance 146,450 137,133

Goodwill 72,334 72,334

Other intangibles 6,043 9,465

Premises and equipment, net 69,567 69,091

Accrued interest receivable 24,137 24,354

Other real estate owned 44,325 41,240

Mortgage loan servicing rights 10,488 10,780

Other 140,174 129,566

Total other assets 513,518 493,963

Total assets $7,298,377 $7,040,329

The accompanying notes are an integral part of the consolidated financial statements.

C O N S O L I D A T E D B A L A N C E S H E E T S

51

(CONTINUED)

PARK NATIONAL CORPORATION AND SUBSIDIARIESat December 31, 2010 and 2009 (In thousands, except share and per share data)

LIABILITIES AND STOCKHOLDERS’ EQUITY2010 2009

Deposits:Noninterest bearing $ 937,719 $ 897,243

Interest bearing 4,157,701 4,290,809

Total deposits 5,095,420 5,188,052

Short-term borrowings 663,669 324,219

Long-term debt 636,733 654,381

Subordinated debentures 75,250 75,250

Total borrowings 1,375,652 1,053,850

Other liabilities:Accrued interest payable 6,123 9,330

Other 75,358 71,833

Total other liabilities 81,481 81,163

Total liabilities 6,552,553 6,323,065

COMMITMENTS AND CONTINGENCIES

Stockholders’ equity:Preferred stock (200,000 shares authorized;

100,000 shares issued with $1,000 per shareliquidation preference) 97,290 96,483

Common stock, no par value (20,000,000 shares authorized;16,151,062 shares issued at December 31, 2010 and 16,151,112 issued at December 31, 2009) 301,204 301,208

Common stock warrants 4,473 5,361

Accumulated other comprehensive income (loss), net (1,868) 15,661

Retained earnings 422,458 423,872

Less: Treasury stock (752,128 shares at December 31, 2010 and1,268,332 shares at December 31, 2009) (77,733) (125,321)

Total stockholders’ equity 745,824 717,264

Total liabilities and stockholders’ equity $7,298,377 $7,040,329


C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E

52

PARK NATIONAL CORPORATION AND SUBSIDIARIESfor the years ended December 31, 2010, 2009 and 2008 (In thousands, except per share data)

2010 2009 2008

Interest and dividend income:Interest and fees on loans $267,692 $275,599 $301,163

Interest and dividends on:Obligations of U.S. Government, its agencies

and other securities 76,839 90,558 87,711

Obligations of states and political subdivisions 786 1,417 2,171

Other interest income 200 116 294

Total interest and dividend income 345,517 367,690 391,339

Interest expense:Interest on deposits:

Demand and savings deposits 5,753 10,815 22,633

Time deposits 36,212 53,805 67,259

Interest on short-term borrowings 1,181 3,209 14,469

Interest on long-term debt 28,327 26,370 31,105

Total interest expense 71,473 94,199 135,466

Net interest income 274,044 273,491 255,873


Net interest income after provision for loan losses 209,142 204,670 185,386

Other income:Income from fiduciary activities 13,874 12,468 13,937

Service charges on deposit accounts 19,717 21,985 24,296

Net gains on sales of securities 11,864 7,340 1,115

Other service income 13,816 18,767 8,882

Checkcard fee income 11,177 9,339 8,695

Bank owned life insurance income 4,978 5,050 5,102

ATM fees 2,951 3,082 3,063

OREO devaluations (10,590) (6,818) (2,948)

Net gain on sale of credit card portfolio — — 7,618

Income from sale of merchant processing — — 4,200

Other 9,709 9,977 10,874

Total other income $ 77,496 $ 81,190 $ 84,834


C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E (CONTINUED)

53

PARK NATIONAL CORPORATION AND SUBSIDIARIESfor the years ended December 31, 2010 2009 and 2008 (In thousands, except per share data)

2010 2009 2008

Other expense:Salaries and employee benefits $ 98,315 $101,225 $ 99,018


Data processing fees 5,728 5,674 7,121

Professional fees and services 19,972 15,935 12,801

Net occupancy expense of bank premises 11,510 11,552 11,534

Amortization of intangibles 3,422 3,746 4,025

Furniture and equipment expense 10,435 9,734 9,756

Insurance 8,983 12,072 2,322

Marketing 3,656 3,775 4,525

Postage and telephone 6,648 6,903 7,167

State taxes 3,171 3,206 2,989

Other 15,267 14,903 18,257

Total other expense 187,107 188,725 234,501

Income before income taxes 99,531 97,135 35,719

Income taxes 25,314 22,943 22,011

Net income $ 74,217 $ 74,192 $ 13,708

Preferred stock dividends and accretion 5,807 5,762 142

Income available to common shareholders $ 68,410 $ 68,430 $ 13,566

Earnings per common share:Basic $4.51 $4.82 $0.97

Diluted $4.51 $4.82 $0.97


54

C O N S O L I D A T E D S T A T E M E N T S O F

C H A N G E S I N S T O C K H O L D E R S ’ E Q U I T Y

PARK NATIONAL CORPORATION AND SUBSIDIARIESfor the years ended December 31, 2010, 2009 and 2008 (In thousands, except share and per share data)

Preferred Stock Common Stock AccumulatedOther

Shares Shares Retained Treasury Comprehensive ComprehensiveOutstanding Amount Outstanding Amount Earnings Stock Income (Loss) Total Income

Balance, January 1, 2008 — $ — 13,964,576 $301,213 $489,511 $(208,104) $ (2,608) $580,012Net income 13,708 — — 13,708 $ 13,708Other comprehensive income (loss), net of tax:

Change in funded status of pension plan, net ofincome taxes of $(8,735) (16,223) (16,223) (16,223)

Unrealized net holding loss oncash flow hedge, net ofincome taxes of $(678) (1,259) (1,259) (1,259)

Unrealized net holding gain on securities available-for-sale, net of income taxes of $16,522 30,686 30,686 30,686

Total comprehensive income $ 26,912Cash dividends, $3.77 per share — — (52,608) — — (52,608)Cash payment for fractional shares

in dividend reinvestment plan (49) (3) — — — (3)Cumulative effect of new accounting

pronouncement pertaining toendorsement split-dollar life insurance (11,634) (11,634)

SFAS No. 158 measurement dateadjustment, net of taxes of $(178) (331) (331)

Preferred stock issued 100,000 100,000 100,000Discount on preferred stock issued (4,297) (4,297)Accretion of discount on preferred stock 18 (18) —Common stock warrant issued — 4,297 4,297Preferred stock dividends (124) (124)Treasury stock reissued for

director grants 7,200 439 439

Balance, December 31, 2008 100,000 $ 95,721 13,971,727 $305,507 $438,504 $(207,665) $ 10,596 $642,663Net income — — 74,192 — — 74,192 $ 74,192Other comprehensive income (loss), net of tax:

Change in funded status of pension plan, net ofincome taxes of $3,383 6,283 6,283 6,283

Unrealized net holding gain oncash flow hedge, net ofincome taxes of $159 295 295 295

Unrealized net holding loss on securities available-for-sale, net of income taxes of $(815) (1,513) (1,513) (1,513)


in dividend reinvestment plan (39) (2) — — — (2)Reissuance of common stock

from treasury shares held 904,072 — (29,299) 81,710 — 52,411Accretion of discount on preferred stock 762 (762) —Common stock warrants issued — 1,064 1,064Preferred stock dividends (5,000) (5,000)Treasury stock reissued for

director grants 7,020 (200) 634 434

Balance, December 31, 2009 100,000 $ 96,483 14,882,780 $306,569 $423,872 $(125,321) $ 15,661 $717,264Net income — — 74,217 — — 74,217 $ 74,217Other comprehensive income (loss), net of tax:

Change in funded status of pension plan, net ofincome taxes of $(1,307) (2,427) (2,427) (2,427)

Unrealized net holding loss oncash flow hedge, net ofincome taxes of $(53) (98) (98) (98)

Unrealized net holding loss on securities available-for-sale, net of income taxes of $(8,078) (15,004) (15,004) (15,004)


in dividend reinvestment plan (50) (4) — — — (4)Reissuance of common stock

from treasury shares held 509,184 (898) (12,729) 46,954 33,327Accretion of discount on preferred stock 807 (807) —Common stock warrants issued — 176 176Common stock warrants cancelled (166) 166 —Preferred stock dividends (5,000) (5,000)Treasury stock reissued for

director grants 7,020 (185) 634 449

Balance, December 31, 2010 100,000 $ 97,290 15,398,934 $305,677 $422,458 $ (77,733) $ (1,868) $745,824


C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S

55

PARK NATIONAL CORPORATION AND SUBSIDIARIESfor the years ended December 31, 2010, 2009 and 2008 (In thousands)

2010 2009 2008

Operating activities:Net income $ 74,217 $ 74,192 $ 13,708Adjustments to reconcile net income to net cash

provided by operating activities:Provision for loan losses 64,902 68,821 70,487Amortization of loan fees and costs, net (9) (1,378) (4,650)Provision for depreciation 7,126 7,473 7,517Other than temporary impairment on investment securities 23 613 980Goodwill impairment charge — — 54,986Amortization of intangible assets 3,422 3,746 4,025Accretion of investment securities (2,413) (2,682) (1,592)Gain on sale of credit card portfolio — — (7,618)Deferred income tax (benefit) (925) (8,932) (1,590)Realized net investment security gains (11,864) (7,340) (1,115)Stock dividends on Federal Home Loan Bank stock — — (2,269)Compensation expense for issuance of treasury stock to directors 449 434 439Changes in assets and liabilities:

Increase in other assets (8,974) (31,987) (42,409)Increase (decrease) in other liabilities 180 (30,622) 239

Net cash provided by operating activities 126,134 72,338 91,138

Investing activities:Proceeds from sales of available-for-sale securities 460,192 204,304 80,894Proceeds from maturities of securities:

Held-to-maturity 146,986 40,105 7,116Available-for-sale 2,238,059 426,841 303,160

Purchase of securities:Held-to-maturity (313,642) (118,667) (270,045)Available-for-sale (2,719,265) (349,895) (422,512)

Proceeds from sale of credit card portfolio — — 38,841Net decrease (increase) in other investments 220 (114) (3,371)Net loan originations, excluding loan sales (510,495) (814,981) (512,752)Proceeds from sale of loans 358,029 615,072 161,475Purchases of bank owned life insurance, net (4,562) — (8,401)Purchases of premises and equipment, net (7,602) (8,011) (9,436)

Net cash used in investing activities (352,080) (5,346) (635,031)

Financing activities:Net (decrease) increase in deposits (92,632) 426,302 322,511Net increase (decrease) in short-term borrowings 339,450 (334,977) (100,122)Issuance of preferred stock — — 100,000Issuance of treasury stock, net 33,541 53,475 —Proceeds from issuance of subordinated notes — 35,250 —Proceeds from long-term debt — 60,100 690,100Repayment of long-term debt (17,648) (261,278) (424,951)Cash dividends paid (62,076) (58,035) (65,781)

Net cash provided by (used in) financing activities 200,635 (79,163) 521,757

Decrease in cash and cash equivalents (25,311) (12,171) (22,136)Cash and cash equivalents at beginning of year 159,091 171,262 193,398

Cash and cash equivalents at end of year $ 133,780 $ 159,091 $ 171,262


N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe following is a summary of significant accounting policies followed in thepreparation of the consolidated financial statements:

Principles of ConsolidationThe consolidated financial statements include the accounts of Park National Corporation and its subsidiaries (“Park”, the “Company” or the“Corporation”). Material intercompany accounts and transactions have been eliminated.

Use of EstimatesThe preparation of financial statements in conformity with U.S. generallyaccepted accounting principles requires management to make estimates andassumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Management has identified the allowance for loan losses, accountingfor Other Real Estate Owned (“OREO”) and accounting for goodwill as signifi-cant estimates.

ReclassificationsCertain prior year amounts have been reclassified to conform with the currentyear presentation.

Subsequent EventsManagement has evaluated events occurring subsequent to the balance sheetdate, determining no events require additional disclosure in these consolidatedfinancial statements.

Investment SecuritiesInvestment securities are classified upon acquisition into one of three cate-gories: held-to-maturity, available-for-sale, or trading (see Note 4 of these Notes to Consolidated Financial Statements).

Held-to-maturity securities are those securities that the Corporation has thepositive intent and ability to hold to maturity and are recorded at amortizedcost. Available-for-sale securities are those securities that would be available to be sold in the future in response to the Corporation’s liquidity needs, changesin market interest rates, and asset-liability management strategies, among otherreasons. Available-for-sale securities are reported at fair value, with unrealizedholding gains and losses excluded from earnings but included in other com -prehensive income, net of applicable taxes. The Corporation did not hold anytrading securities during any period presented.

Available-for-sale and held-to-maturity securities are evaluated quarterly forpotential other-than-temporary impairment. Management considers the facts related to each security including the nature of the security, the amount andduration of the loss, the credit quality of the issuer, the expectations for thatsecurity’s performance and Park’s intent and ability to hold the security untilrecovery. Declines in equity securities that are considered to be other-than-temporary are recorded as a charge to earnings in the Consolidated Statementsof Income. Declines in debt securities that are considered to be other-than-temporary are separated into (1) the amount of the total impairment related to credit loss and (2) the amount of the total impairment related to all otherfactors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total impairmentrelated to all other factors is recognized in other comprehensive income.

Interest income includes amortization of purchase premium or discount.Premiums and discounts on securities are amortized on the level-yield methodwithout anticipating prepayments, except for mortgage-backed securities whereprepayments are anticipated.

Gains and losses realized on the sale of investment securities are recorded onthe trade date and determined using the specific identification basis.

Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) StockPark’s two separately chartered banks are members of the FHLB and FRB.Members are required to own a certain amount of stock based on their level of borrowings and other factors and may invest in additional amounts. FHLBand FRB stock are carried at cost, classified as restricted securities, and arecarried at their redemption value. Both cash and stock dividends are reportedas income.

Bank Owned Life InsurancePark has purchased life insurance policies on directors and certain key officers.Bank owned life insurance is recorded at its cash surrender value (or theamount that can be realized).

Mortgage Loans Held for SaleMortgage loans held for sale are carried at their fair value. Mortgage loans heldfor sale were $8.3 million and $9.6 million at December 31, 2010 and 2009,respectively. These amounts are included in loans on the Consolidated BalanceSheets.

Mortgage Banking Derivatives Commitments to fund mortgage loans (interest rate locks) to be sold into thesecondary market and forward commitments for the future delivery of thesemortgage loans are accounted for as free standing derivatives. Fair values ofthese mortgage derivatives are estimated based on changes in mortgage interestrates from the date the interest on the loan is locked. The Company enters intoforward commitments for the future delivery of mortgage loans when interestrate locks are entered into, in order to hedge the change in interest rates result-ing from its commitments to fund the loans. Changes in the fair values of thesederivatives are included in net gains on sales of loans.

LoansLoans that management has the intent and ability to hold for the foreseeablefuture or until maturity or payoff, are reported at their outstanding principalbalances adjusted for any charge-offs, any deferred fees or costs on originatedloans, and any unamortized premiums or discounts on purchased loans.Interest income is reported on the interest method and includes amortization of net deferred loan origination fees and costs over the loan term. Commercialloans include: (1) commercial, financial and agricultural loans; (2) commer-cial real estate loans; (3) those commercial loans in the real estate constructionloan segment; and (4) those commercial loans in the residential real estateloan segment. Consumer loans include: (1) mortgage and installment loansincluded in the real estate construction segment; (2) mortgage, home equitylines of credit (HELOC), and installment loans included in the residential realestate segment; and (3) all loans included in the consumer segment. Generally,commercial loans are placed on nonaccrual status at 90 days past due and consumer and residential mortgage loans are placed on nonaccrual status at120 days past due. Interest on these loans is considered a loss, unless the loanis well-secured and in the process of collection. Commercial loans placed on nonaccrual status are considered impaired (See Note 5 of these Notes toConsolidated Financial Statements). For loans which are on nonaccrual status,it is Park’s policy to reverse interest previously accrued on the loans againstinterest income. Interest on such loans is thereafter recorded on a cash basisand is included in earnings only when actually received in cash. Park’s charge-off policy for commercial loans requires management to establish a specificreserve or record a charge-off as soon as it is apparent that the borrower istroubled and there is, or likely will be, a collateral shortfall related to the estimated value of the collateral securing the loan. The Company’s charge-offpolicy for consumer loans is dependent on the class of the loan. Mortgage loans and HELOC are typically charged down to the value of the collateral, less estimated selling costs at 180 days past due. The charge-off policy for other consumer loans, primarily installment loans, requires a monthly review of delinquent loans and a complete charge-off for any account that reaches 120 days past due.


The delinquency status of a loan is based on contractual terms and not on howrecently payments have been received. Loans are removed from nonaccrualstatus when loan payments have been received to cure the delinquency statusand the loan is deemed to be well-secured by management.

A description of each segment of the loan portfolio, along with the risk charac-teristics of each segment, is included below:

Commercial, financial and agricultural: Commercial, financial and agricultural loans are made for a wide variety of general corporate purposes,including financing for industrial and commercial properties, financing forequipment, inventories and accounts receivable, acquisition financing and commercial leasing. The term of each commercial loan varies by its purpose.Repayment terms are structured such that commercial loans will be repaidwithin the economic useful life of the underlying asset. The commercial loanportfolio includes loans to a wide variety of corporations and businesses acrossmany industrial classifications in (i) the 28 Ohio counties and one Kentuckycounty where Park National Bank operates and (ii) the five Florida counties and one Alabama county where Vision Bank operates. The primary industriesrepresented by these customers include commercial real estate leasing, manufacturing, retail trade, health care and other services.

Commercial real estate: Commercial real estate loans (“CRE loans”) include mortgage loans to developers and owners of commercial real estate.The lending policy for CRE loans is designed to address the unique risk attributes of CRE lending. The collateral for these CRE loans is the underlyingcommercial real estate. Each subsidiary bank generally requires that the CREloan amount be no more than 85% of the purchase price or the appraised value of the commercial real estate securing the CRE loan, whichever is less.CRE loans made for each subsidiary bank’s portfolio generally have a variableinterest rate. A CRE loan may be made with a fixed interest rate for a term generally not exceeding five years.

Construction real estate: The Company defines construction loans as bothcommercial construction loans and residential construction loans where theloan proceeds are used exclusively for the improvement of real estate as towhich the Company holds a mortgage. Construction loans may be in the form of a permanent loan or a short-term construction loan, depending on the needs of the individual borrower. Generally, the permanent construction loans have avariable interest rate although a permanent construction loan may be made witha fixed interest rate for a term generally not exceeding five years. Short-termconstruction loans are made with variable interest rates. Construction financingis generally considered to involve a higher degree of risk of loss than long-termfinancing on improved, occupied real estate. Risk of loss on a construction loandepends largely upon the accuracy of the initial estimate of the property’s valueat completion of construction and the estimated cost (including interest) ofconstruction. If the estimate of construction cost proves to be inaccurate, thesubsidiary bank making the loan may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of value proves inaccurate, the subsidiary bank may be confronted, at or prior to the maturity of the loan, with a project having a value insufficientto assure full repayment, should the borrower default. In the event a default ona construction loan occurs and foreclosure follows, the subsidiary bank musttake control of the project and attempt either to arrange for completion of construction or to dispose of the unfinished project. Additional risk exists withrespect to loans made to developers who do not have a buyer for the property,as the developer may lack funds to pay the loan if the property is not sold uponcompletion. Park’s subsidiary banks attempt to reduce such risks on loans todevelopers by requiring personal guarantees and reviewing current personalfinancial statements and tax returns as well as other projects undertaken by the developer.

Residential real estate: The Company defines residential real estate loans as first mortgages on individuals’ primary residence or second mortgages ofindividuals’ primary residence in the form of home equity lines of credit orinstallment loans. Credit approval for residential real estate loans requires

demonstration of sufficient income to repay the principal and interest and thereal estate taxes and insurance, stability of employment, an established creditrecord and an appropriately appraised value of the real estate securing theloan. Each subsidiary bank generally requires that the residential real estateloan amount be no more than 80% of the purchase price or the appraised value of the real estate securing the loan, whichever is less, unless private mortgageinsurance is obtained by the borrower. Loans made for each subsidiary bank’sportfolio in this lending category are generally adjustable rate, fully amortizedmortgages. The rates used are generally fully-indexed rates. Park generally doesnot price residential loans using low introductory “teaser” rates. Home equitylines of credit are generally made as second mortgages by Park’s subsidiarybanks. The maximum amount of a home equity line of credit is generally limited to 85% of the appraised value of the property less the balance of the first mortgage.

Consumer: The Company originates direct and indirect consumer loans, primarily automobile loans and home equity based credit cards to customersand prospective customers in its primary market areas. Credit approval for consumer loans requires income sufficient to repay principal and interest due,stability of employment, an established credit record and sufficient collateral forsecured loans. Consumer loans typically have shorter terms and lower balanceswith higher yields as compared to real estate mortgage loans, but generallycarry higher risks of default. Consumer loan collections are dependent on theborrower’s continuing financial stability, and thus are more likely to be affectedby adverse personal circumstances.

Allowance for Loan LossesThe allowance for loan losses is that amount believed adequate to absorb probable incurred credit losses in the loan portfolio based on management’sevaluation of various factors. The determination of the allowance requires sig-nificant estimates, including the timing and amounts of expected cash flows onimpaired loans, consideration of current economic conditions, and historicalloss experience pertaining to pools of homogeneous loans, all of which may besusceptible to change. The allowance is increased through a provision for loanlosses that is charged to earnings based on management’s quarterly evaluationof the factors previously mentioned and is reduced by charge-offs, net of recoveries.

The allowance for loan losses includes both (1) an estimate of loss based on historical loss experience within both commercial and consumer loan categories with similar characteristics (“statistical allocation”) and (2) an estimate of loss based on an impairment analysis of each commercial loan that is considered to be impaired (“specific allocation”).

In calculating the allowance for loan losses, management believes it is appropriate to utilize historical loss rates that are comparable to the currentperiod being analyzed. For the historical loss factor at December 31, 2010, theCompany utilized an annual loss rate (“historical loss experience”), calculatedbased on an average of the net charge-offs and the annual change in specificreserves for impaired commercial loans, experienced during 2008, 2009 and 2010 within the commercial and consumer loan categories. Managementbelieves the 36-month historical loss experience methodology is appropriate in the current economic environment, as it captures loss rates that are comparable to the current period being analyzed. The loss factor applied to Park’s consumer portfolio is based on the historical loss experience over the past 36 months, plus an additional judg mental reserve, increasing the totalallowance for loan loss coverage in the consumer portfolio to approximately1.5 years of historical loss. The loss factor applied to Park’s commercial port -folio is based on the historical loss experience over the past 36 months, plus an additional judgmental reserve, increasing the total allowance for loan losscoverage in the commercial port folio to approximately 1.5 years of historicalloss. Park’s commercial loans are individually risk graded. If loan downgradesoccur, the probability of default increases, and accordingly management allocates a higher percentage reserve to those accruing commercial loansgraded special mention and substandard.

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The judgmental increases discussed above incorporates management’s evaluation of the impact of environmental qualitative factors which pose additional risks and assigns a component of the allowance for loan losses in consideration of these factors. Such environmental factors include: nationaland local economic trends and conditions; experience, ability and depth oflending management and staff; effects of any changes in lending policies andprocedures; levels of, and trends in, consumer bankruptcies, delinquencies,impaired loans and charge-offs and recoveries.

U.S. generally accepted accounting principles (“GAAP”) require a specific allocation to be established as a component of the allowance for loan losses for certain loans when it is probable that all amounts due pursuant to the contractual terms of the loans will not be collected, and the recorded invest-ment in the loans exceeds fair value. Fair value is measured using either thepresent value of expected future cash flows based upon the initial effective interest rate on the loan, the observable market price of the loan or the fairvalue of the collateral, if the loan is collateral dependent.

Income RecognitionIncome earned by the Corporation and its subsidiaries is recognized on the accrual basis of accounting, except for nonaccrual loans as previously discussed, and late charges on loans which are recognized as income when they are collected.

Premises and EquipmentPremises and equipment are stated at cost, less accumulated depreciation andamortization. Depreciation is generally provided on the straight-line methodover the estimated useful lives of the related assets. Leasehold improvementsare amortized over the shorter of the remaining lease period or the estimateduseful lives of the improvements. Upon the sale or other disposal of an asset,the cost and related accumulated depreciation are removed from the accountsand the resulting gain or loss is recognized. Maintenance and repairs arecharged to expense as incurred while renewals and improvements that extendthe useful life of an asset are capitalized. Premises and equipment is evaluatedfor impairment whenever events or changes in circumstances indicate that thecarrying amount of the asset may not be recoverable.

The range of depreciable lives over which premises and equipment are beingdepreciated are:

Buildings 5 to 50 YearsEquipment, furniture and fixtures 3 to 20 YearsLeasehold improvements 1 to 10 Years

Buildings that are currently placed in service are depreciated over 30 years.Equipment, furniture and fixtures that are currently placed in service are depreciated over 3 to 12 years. Leasehold improvements are depreciated over the lives of the related leases which range from 1 to 10 years.

Other Real Estate Owned (OREO)

Mortgage Loan Servicing RightsWhen Park sells mortgage loans with servicing rights retained, servicing rightsare recorded at the lower of their amortized cost or fair value, with the incomestatement effect recorded in gains on sale of loans. Capitalized servicing rightsare amortized in proportion to and over the period of estimated future servicingincome of the underlying loan. Capitalized mortgage servicing rights totaled$10.5 million at December 31, 2010 and $10.8 million at December 31, 2009.The fair value of mortgage servicing rights is determined by discounting esti-mated future cash flows from the servicing assets, using market discount ratesand expected future prepayment rates. In order to calculate fair value, the soldloan portfolio is stratified into homogenous pools of like categories. (See Note20 of these Notes to Consolidated Financial Statements.)

Mortgage servicing rights are assessed for impairment periodically, based on fair value, with any impairment recognized through a valuation allowance.Fees received for servicing mortgage loans owned by investors are based on apercentage of the outstanding monthly principal balance of such loans and areincluded in income as loan payments are received. The cost of servicing loans is charged to expense as incurred.

Goodwill and Other Intangible AssetsGoodwill represents the excess of the purchase price over net identifiable tangible and intangible assets acquired in a purchase business combination.Other intangible assets represent purchased assets that have no physical prop-erty but represent some future economic benefit to their owner and are capableof being sold or exchanged on their own or in combination with a related assetor liability.

Goodwill and indefinite-lived intangible assets are not amortized to expense, butare subject to annual impairment tests, or more frequently if events or changesin circumstances indicate that the asset might be impaired. Intangible assetswith definitive useful lives (such as core deposit intangibles) are amortized toexpense over their estimated useful lives.

Management considers several factors when performing the annual impairmenttests on goodwill. The factors considered include the operating results for theparticular Park segment for the past year and the operating results budgeted forthe current year (including multi-year projections), the purchase prices beingpaid for financial institutions in the markets served by the Park segment, thedeposit and loan totals of the Park segment and the economic conditions in the markets served by the Park segment.

The following table reflects the activity in goodwill and other intangible assetsfor the years 2010, 2009 and 2008. (See Note 2 of these Notes to ConsolidatedFinancial Statements for details on the acquisition of Vision Bancshares, Inc.(“Vision”), and the recognition of impairment charges in 2008 to Vision Bank’s goodwill.)

Core Deposit(In thousands) Goodwill Intangibles Total

December 31, 2007 $127,320 $17,236 $144,556

Amortization — (4,025) (4,025)Impairment of Vision Goodwill (54,986) — (54,986)

December 31, 2008 $ 72,334 $13,211 $ 85,545

Amortization — (3,746) (3,746)

December 31, 2009 $ 72,334 $ 9,465 $ 81,799

Amortization — (3,422) (3,422)

December 31, 2010 $ 72,334 $ 6,043 $ 78,377

GAAP requires a company to perform an impairment test on goodwill annually,or more frequently if events or changes in circumstances indicate that the assetmight be impaired, by comparing the fair value of such goodwill to its recordedor carrying amount. If the carrying amount of the goodwill exceeds the fairvalue, an impairment charge must be recorded in an amount equal to theexcess.

sale. If the net realizable value is below the carrying value of the loan at the date of transfer, the difference is charged to the allowance for loan losses.Subsequent declines in value, OREO devaluations, are typically reported asadjustments to the carrying amount of OREO and are expensed within “otherincome”. In certain circumstances where management believes the devaluationmay not be permanent in nature, Park utilizes a valuation allowance to recordOREO devaluations, which is also expensed through “other income”. Costs

OREO is recorded at fair value less anticipated selling costs (net realizable value) and consists of property acquired through foreclosure and real estate held for

relating to development and improvement of such properties are capitalized (not in excess of fair value less estimated costs to sell) and costs relating to holding the properties are charged to expense.


Park typically evaluates goodwill for impairment on April 1 of each year, withfinancial data as of March 31. Based on the analysis performed as of April 1,2010, the Company determined that goodwill for Park’s Ohio-based bank (The Park National Bank) was not impaired.

The balance of goodwill was $127.3 million at December 31, 2007 and waslocated at four subsidiary banks of Park. The subsidiary banks were VisionBank ($55.0 million), The Park National Bank ($39.0 million), CenturyNational Bank ($25.8 million) and The Security National Bank and Trust Co. ($7.5 million). During 2008, Park completed the consolidation of the eight banking charters of Park’s Ohio-based subsidiary banks into one nationalbank charter. With this consolidation, the goodwill at The Park National Bankwas $72.3 million.

Based primarily on the increased level of net loan charge-offs at Vision Bank, management determined that it was appropriate to test for goodwillimpairment during the third quarter of 2008. Park continued to experiencecredit deterioration in Vision Bank’s market place during the third quarter of 2008. The fair value of Vision was estimated by using the average of threemeasurement methods. These included: (1) application of various metrics from bank sale transactions for institutions comparable to Vision Bank; (2) application of a market-derived multiple of tangible book value; and (3) estimations of the present value of future cash flows. Park’s managementreviewed the valuation of Vision Bank with Park’s Board of Directors and concluded that Vision Bank should recognize an impairment charge and write down the remaining goodwill ($55.0 million), resulting in a goodwillbalance of zero with respect to the Vision Bank reporting unit.

Goodwill and other intangible assets (as shown on the Consolidated BalanceSheets) totaled $78.4 million at December 31, 2010, $81.8 million atDecember 31, 2009 and $85.5 million at December 31, 2008.

The core deposit intangibles are being amortized to expense principally on the straight-line method, over periods ranging from six to ten years. The amortization period for the core deposit intangibles related to the Vision acquisition is six years. Core deposit intangible amortization expense was $3.4 million in 2010, $3.7 million in 2009 and $4.0 million in 2008.

The accumulated amortization of core deposit intangibles was $16.1 million asof December 31, 2010 and $12.7 million at December 31, 2009. The expectedcore deposit intangible amortization expense for each of the next five years is as follows:

(In thousands)

2011 $2,6772012 2,6772013 6892014 —2015 —

Total $6,043

Consolidated Statement of Cash FlowsCash and cash equivalents include cash and cash items, amounts due frombanks and money market instruments. Generally money market instruments are purchased and sold for one-day periods.

Net cash provided by operating activities reflects cash payments as follows:

December 31, 2010 2009 2008(In thousands)

Interest paid on deposits and other borrowings $74,680 $96,204 $139,256Income taxes paid $24,600 $30,660 $ 28,365Transfers to OREO $35,507 $35,902 $ 37,823

Loss Contingencies and GuaranteesLoss contingencies, including claims and legal actions arising in the ordinarycourse of business, are recorded as liabilities when the likelihood of loss isprobable and an amount or range of loss can be reasonably estimated.

Income TaxesThe Corporation accounts for income taxes using the asset and liabilityapproach. Under this method, deferred tax assets and liabilities are determinedbased on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be ineffect when the differences are expected to reverse. To the extent that Park doesnot consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is recorded. All positive and negative evidence is reviewedwhen determining how much of a valuation allowance is recognized on a quarterly basis. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

An uncertain tax position is recognized as a benefit only if it is “more-likely-than-not” that the tax position would be sustained in a tax examination beingpresumed to occur. The benefit recognized for a tax position that meets the“more-likely-than-not” criteria is measured based on the largest benefit that is more than 50 percent likely to be realized, taking into consideration theamounts and probabilities of the outcome upon settlement. For tax positionsnot meeting the “more-likely-than-not” test, no tax benefit is recorded. Parkrecognizes any interest and penalties related to income tax matters in incometax expense.

Preferred StockOn December 23, 2008, Park issued $100 million of Senior Preferred Shares to the U.S. Department of Treasury (the “Treasury”) under the Capital PurchaseProgram (CPP), consisting of 100,000 shares, each with a liquidation prefer-ence of $1,000 per share. In addition, on December 23, 2008, Park issued awarrant to the Treasury to purchase 227,376 common shares. These preferredshares and related warrant are considered permanent equity for accountingpurposes. GAAP requires management to allocate the proceeds from theissuance of the preferred stock between the preferred stock and relatedwarrant. The terms of the preferred shares require management to pay a cumulative dividend at the rate of 5 percent per annum until February 14, 2014 and 9 percent thereafter. Management determined that the 5 percent dividend rate is below market value; therefore, the fair value of the preferredshares would be less than the $100 million in proceeds. Management determined that a reasonable market discount rate is 12 percent for the fairvalue of preferred shares. Management used the Black-Scholes model for calculating the fair value of the warrant (and related common shares). The allocation between the preferred shares and warrant at December 23, 2008, the date of issuance, was $95.7 million and $4.3 million, respectively. The discount on the preferred shares of $4.3 million is being accreted throughretained earnings over a 60 month period.

Treasury StockThe purchase of Park’s common stock is recorded at cost. At the date of retirement or subsequent reissuance, the treasury stock account is reduced by the weighted average cost of the common shares retired or reissued.

Comprehensive IncomeComprehensive income consists of net income and other comprehensiveincome (loss). Other comprehensive income (loss) includes unrealized gainsand losses on securities available for sale, changes in the funded status of theCompany’s Defined Benefit Pension Plan, and the unrealized net holding gainsand losses on the cash flow hedge, which are also recognized as separate components of equity.

Stock Based CompensationCompensation cost is recognized for stock options and stock awards issued toemployees and directors, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stockoptions, while the market price of Park’s common stock at the date of grant is used for stock awards. Compensation cost is recognized over the requiredservice period, generally defined as the vesting period. Park did not grant any

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stock options during 2010, 2009 or 2008. No stock options vested in 2010,2009 or 2008. Park granted 7,020, 7,020 and 7,200 shares of common stockto its directors in 2010, 2009 and 2008, respectively.

Derivative InstrumentsAt the inception of a derivative contract, the Company designates the derivativeas one of three types based on the Company’s intentions and belief as to likelyeffectiveness as a hedge. These three types are: (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fairvalue hedge”); (2) a hedge of a forecasted transaction or the variability of cashflows to be received or paid related to a recognized asset or liability (“cash flow hedge”); or (3) an instrument with no hedging designation (“stand-alonederivative”). For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item, are recognized in currentearnings as fair values change. For a cash flow hedge, the gain or loss on thederivative is reported in other comprehensive income and is reclassified intoearnings in the same periods during which the hedged transaction affects earnings. For both types of hedges, changes in the fair value of derivatives thatare not highly effective in hedging the changes in fair value or expected cashflows of the hedged item are recognized immediately in current earnings.Changes in the fair value of derivatives that do not qualify for hedge accountingare reported currently in earnings, as noninterest income.

The Company formally documents the relationship between derivatives andhedged items, as well as the risk-management objective and the strategy forundertaking hedge transactions at the inception of the hedging relationship.This documentation includes linking fair value or cash flow hedges to specificassets and liabilities on the Consolidated Balance Sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses,both at the hedge’s inception and on an ongoing basis, whether the derivativeinstruments that are used are highly effective in offsetting changes in fair valuesor cash flows of the hedged items. The Company discontinues hedge accountingwhen it determines that the derivative is no longer effective in offsetting changesin the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedgedfirm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.

When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as noninterest income. When a fair value hedge isdiscontinued, the hedged asset or liability is no longer adjusted for changes infair value and the existing basis adjustment is amortized or accreted over theremaining life of the asset or liability. When a cash flow hedge is discontinuedbut the hedged cash flows or forecasted transactions are still expected to occur,gains or losses that were accumulated in other comprehensive income areamortized into earnings over the same periods which the hedged transactionswill affect earnings.

Fair Value MeasurementFair values of financial instruments are estimated using relevant market infor-mation and other assumptions, as more fully disclosed in Note 21 of these Notes to Consolidated Financial Statements. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broadmarkets for particular items. Changes in assumptions or in market conditionscould significantly affect the estimates.

Transfers of Financial AssetsTransfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, thetransferee obtains the right (free of conditions that constrain it from takingadvantage of that right) to pledge or exchange the transferred assets, and theCompany does not maintain effective control over the transferred assets throughan agreement to repurchase them before their maturity.

Retirement PlansPension expense is the net of service and interest cost, return on plan assetsand amortization of gains and losses not immediately recognized. Employee401(k) plan expense is the amount of matching contributions. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service.

Earnings Per Common ShareBasic earnings per common share is net income available to common stock-holders divided by the weighted average number of common shares outstandingduring the period. Diluted earnings per common share includes the dilutiveeffect of additional potential common shares issuable under stock options, warrants and convertible securities. Earnings and dividends per common share are restated for any stock splits and stock dividends through the date of issuance of the consolidated financial statements.

Adoption of New Accounting Pronouncements:Accounting for Transfers of Financial Assets: In June 2009, FASB issuedSFAS No. 166, “Accounting for Transfers of Financial Assets—an amend-ment of FASB Statement No. 140.” This removes the concept of a qualifyingspecial-purpose entity from existing GAAP and removes the exception fromapplying FASB ASC 810-10, Consolidation (FASB Interpretation No. 46 (revisedDecember 2003) Consolidation of Variable Interest Entities) to qualifyingspecial purpose entities. The objective of this new guidance is to improve therelevance, representational faithfulness, and comparability of the informationthat a reporting entity provides in its financial statements about a transfer offinancial assets (which includes loan participations); the effects of a transfer onits financial position, financial performance, and cash flows; and a transferor’scontinuing involvement in transferred financial assets. The Company’s adoptionof this new guidance on January 1, 2010, did not have a material impact onPark’s consolidated financial statements.

Amendments to FASB Interpretation No. 46(R): In June 2009, FASBissued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (ASC810). The objective of this new guidance is to amend certain requirements ofFASB Interpretation No. 46 (revised December 2003), Consolidation ofVariable Interest Entities, to improve financial reporting by enterprisesinvolved with variable interest entities and to provide more relevant and reliable information to users of financial statements. The Company’s adoption of this new guidance on January 1, 2010 had no impact on Park’s consolidatedfinancial statements.

Improving Disclosures About Fair Value Measurements: In January2010, the FASB issued an amendment to Fair Value Measurements andDisclosures, Topic 820, Improving Disclosures About Fair ValueMeasurements. This amendment requires new disclosures regarding significant transfers in and out of Level 1 and 2 fair value measurements and the reasons for the transfers. This amendment also requires that a reporting entity present separately information about purchases, sales,issuances and settlements, on a gross basis rather than a net basis for activity in Level 3 fair value measurements using significant unobservable inputs. Thisamendment also clarifies existing disclosures on the level of disaggregation, inthat the reporting entity needs to use judgment in determining the appropriateclasses of assets and liabilities, and that a reporting entity should provide dis -closures about the valuation techniques and inputs used to measure fair valuefor both recurring and nonrecurring fair value measurements for Level 2 and 3.The new disclosures and clarifications of existing disclosures for ASC 820 areeffective for interim and annual reporting periods beginning after December 15,2009, except for the disclosures about purchases, sales, issuances and settle-ments in the roll forward of activity in Level 3 fair value measurements. Thosedisclosures are effective for fiscal years beginning after December 15, 2010,and for interim periods within those fiscal years. The adoption of ASC 820 didnot have a material effect on the Company’s consolidated financial statements.


Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses: In July 2010, FASB issued AccountingStandards Update 2010-20, Disclosures about the Credit Quality of FinancingReceivables and the Allowance for Credit Losses (ASU 2010-20), to addressconcerns about the sufficiency, transparency, and robustness of credit risk disclosures for finance receivables and the related allowance for credit losses.This ASU requires new and enhanced disclosures at disaggregated levels, specif-ically defined as “portfolio segments” and “classes”. Among other things, theexpanded disclosures include roll-forward schedules of the allowance for creditlosses and information regarding the credit quality of receivables as of the endof a reporting period. New and enhanced disclosures are required for interimand annual periods ending after December 15, 2010, although the disclosuresof reporting period activity are required for interim and annual periods begin-ning after December 15, 2010. The adoption of the new guidance impactsannual disclosures within the Annual Report for the period ended December31, 2010 and will impact disclosures within interim financial statements infuture periods, but will not have an impact on the Company’s consolidatedfinancial statements.

No. 2011-01 | Receivables (Topic 310) Deferral of the Effective Dateof Disclosures about Troubled Debt Restructurings in Update No.2010-20: In January 2011, FASB issued Accounting Standards Update 2011-01, Deferral of the Effective Date of Disclosures about Troubled DebtRestructurings in Update No. 2010-20 (ASU 2011-01). ASU 2011-01 wasissued as a result of concerns raised from stakeholders that the introduction ofnew disclosure requirements (paragraphs 310-10-50-31 through 50-34 of theFASB Accounting Standards Codification) about troubled debt restructurings inone reporting period followed by a change in what constitutes a troubled debtrestructuring shortly thereafter would be burdensome for preparers and maynot provide financial statement users with useful information.

2. ORGANIZATION AND ACQUISITIONSPark National Corporation is a multi-bank holding company headquartered inNewark, Ohio. Through its banking subsidiaries, The Park National Bank (PNB)and Vision Bank (VB), Park is engaged in a general commercial banking andtrust business, primarily in Ohio, Baldwin County, Alabama and the panhandleof Florida. A wholly-owned subsidiary of Park, Guardian Financial ServicesCompany (GFSC) began operating in May 1999. GFSC is a consumer financecompany located in Central Ohio. PNB operates through eleven banking divisions with the Park National Division headquartered in Newark, Ohio, the Fairfield National Division headquartered in Lancaster, Ohio, The ParkNational Bank of Southwest Ohio & Northern Kentucky Division headquarteredin Milford, Ohio, the First-Knox National Division headquartered in MountVernon, Ohio, the Farmers and Savings Division headquartered in Loudonville,Ohio, the Security National Division headquartered in Springfield, Ohio, theUnity National Division headquartered in Piqua, Ohio, the Richland BankDivision headquartered in Mansfield, Ohio, the Century National Division headquartered in Zanesville, Ohio, the United Bank Division headquartered inBucyrus, Ohio and the Second National Division headquartered in Greenville,Ohio. VB operates through two banking divisions with the Vision Bank FloridaDivision headquartered in Panama City, Florida and the Vision Bank AlabamaDivision headquartered in Gulf Shores, Alabama. All of the Ohio-based bankingdivisions provide the following principal services: the acceptance of deposits for demand, savings and time accounts; commercial, industrial, consumer andreal estate lending, including installment loans, credit cards, home equity linesof credit, commercial leasing; trust services; cash management; safe depositoperations; electronic funds transfers and a variety of additional banking-related services. VB, with its two banking divisions, provides the servicesmentioned above, with the exception of commercial leasing. See Note 23 of these Notes to Consolidated Financial Statements for financial information on the Corporation’s operating segments.

On March 9, 2007, Park acquired all of the stock and outstanding stock options of Vision Bancshares, Inc. for $87.8 million in cash and 792,937 shares of Park common stock valued at $83.3 million or $105.00 per share.

The goodwill recognized as a result of this acquisition was $109.0 million. The fair value of the acquired assets of Vision was $686.5 million and the fairvalue of the liabilities assumed was $624.4 million at March 9, 2007. Duringthe fourth quarter of 2007, Park recognized a $54.0 million impairment chargeto the Vision goodwill. In addition, Park recognized an additional impairmentcharge to the remaining Vision goodwill of $55.0 million during the thirdquarter of 2008. The goodwill impairment charge of $55.0 million in 2008reduced income tax expense by approximately $1 million. The goodwill impair-ment charge of $54.0 million in 2007 had no impact on income tax expense.

At the time of the acquisition, Vision operated two bank subsidiaries (bothnamed Vision Bank) which became bank subsidiaries of Park on March 9,2007. On July 20, 2007, the bank operations of the two Vision Banks were consolidated under a single charter through the merger of the Vision Bankheadquartered in Gulf Shores, Alabama with and into the Vision Bank head -quartered in Panama City, Florida. Vision Bank operates under a Floridabanking charter and has 17 branch locations in Baldwin County, Alabama and in the Florida panhandle.

3. RESTRICTIONS ON CASH AND DUE FROM BANKSThe Corporation’s two bank subsidiaries are required to maintain averagereserve balances with the Federal Reserve Bank. The average required reservebalance was approximately $37.8 million at December 31, 2010 and $31.9million at December 31, 2009. No other compensating balance arrangementswere in existence at December 31, 2010.

4. INVESTMENT SECURITIESThe amortized cost and fair value of investment securities are shown in the following table. Management performs a quarterly evaluation of investmentsecurities for any other-than-temporary impairment.

During 2010, Park recognized an other-than-temporary impairment charge of $23,000, related to an equity investment in a financial institution, which isrecorded in “other expenses” within the Consolidated Statements of Income.During 2009, Park recognized impairment losses of $0.6 million related toequity investments in several financial institutions. Since these are equity securities, no amounts were recognized in other comprehensive income at the time of the impairment recognition.

Investment securities at December 31, 2010 were as follows:

Gross GrossUnrealized Unrealized

Amortized Holding Holding Estimated(In thousands) Cost Gains Losses Fair Value

2010:Securities Available-for-Sale

Obligations of U.S. Treasury and other U.S. Government sponsored entities $ 272,301 $ 2,968 $ 1,956 $ 273,313

Obligations of states and political subdivisions 10,815 281 52 11,044

U.S. Government sponsoredentities asset-backed securities 990,204 30,633 9,425 1,011,412

Other equity securities 938 858 43 1,753

Total $1,274,258 $34,740 $11,476 $1,297,522

2010:Securities Held-to-Maturity

Obligations of states and political subdivisions $ 3,167 $ 7 $ — $ 3,174

U.S. Government sponsoredentities asset-backed securities 670,403 17,157 4,620 682,940

Total $ 673,570 $17,164 $ 4,620 $ 686,114

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Park’s U.S. Government sponsored entity asset-backed securities consisted of 15-year r esidential mortgage-backed securities and collateralized mortgage obligations(CMOs). At December 31, 2010, the amortized cost of Park’s AFS and held-to-maturity mortgage-backed securities was $988.5 million and $0.1 million,respectively. At December 31, 2010, the amortized cost of Park’s AFS and held-to-maturity CMOs was $1.7 million and $670.3 million, respectively.


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Other investment securities (as shown on the Consolidated Balance Sheets)consist of stock investments in the Federal Home Loan Bank and the FederalReserve Bank. Park owned $61.8 million of Federal Home Loan Bank stock and $6.9 million of Federal Reserve stock at December 31, 2010. Park owned$62.0 million of Federal Home Loan Bank stock and $6.9 million of FederalReserve Bank stock at December 31, 2009.

Management does not believe any individual unrealized loss as of December 31,2010 or December 31, 2009, represents an other-than-temporary impairment.The unrealized losses on debt securities are primarily the result of interest ratechanges. These conditions will not prohibit Park from receiving its contractualprincipal and interest payments on these debt securities. The fair value of thesedebt securities is expected to recover as payments are received on these securi-ties and they approach maturity.

Should the impairment of any of these securities become other-than-temporary,the cost basis of the investment will be reduced and the resulting loss recog-nized in net income in the period the other-than-temporary impairment isidentified.

The following table provides detail on investment securities with unrealizedlosses aggregated by investment category and length of time the individual securities had been in a continuous loss position at December 31, 2010:

Less than 12 Months 12 Months or Longer Total

Fair Unrealized Fair Unrealized Fair Unrealized(In thousands) Value Losses Value Losses Value Losses


Obligations of U.S.Treasury and otherU.S. Governmentsponsored entities $ 74,379 $ 1,956 $ — $— $ 74,379 $ 1,956

Obligations of states and political subdivisions 1,459 52 — — 1,459 52

U.S. Government sponsored entitiesasset-backed securities 418,156 9,425 — — 418,156 9,425

Other equity securities 74 29 221 14 295 43

Total $494,068 $11,462 $221 $14 $494,289 $11,476


U.S. Government sponsored entitiesasset-backed securities $297,584 $ 4,620 $ — $— $297,584 $ 4,620

Investment securities at December 31, 2009 were as follows:

Gross GrossUnrealized Unrealized

Amortized Holding Holding Estimated(In thousands) Cost Gains Losses Fair Value


Obligations of U.S. Treasury and other U.S. Government sponsored entities $ 349,899 $ 389 $2,693 $ 347,595

Obligations of states and political subdivisions 15,189 493 15 15,667

U.S. Government sponsoredentities asset-backed securities 875,331 47,572 — 922,903

Other equity securities 962 656 56 1,562

Total $1,241,381 $49,110 $2,764 $1,287,727


Obligations of states and political subdivisions $ 4,456 $ 25 $ — $ 4,481

U.S. Government sponsoredentities asset-backed securities 502,458 16,512 1 518,969

Total $ 506,914 $16,537 $ 1 $ 523,450

The following table provides detail on investment securities with unrealizedlosses aggregated by investment category and length of time the individual securities had been in a continuous loss position at December 31, 2009:

Less than 12 Months 12 Months or Longer Total

Fair Unrealized Fair Unrealized Fair Unrealized(In thousands) Value Losses Value Losses Value Losses


Obligations of states and political subdivisions $257,206 $2,693 $ — $— $257,206 $2,693

U.S. Government sponsored entitiesasset-backed securities 295 15 — — 295 15

Other equity securities — — 202 56 202 56

Total $257,501 $2,708 $202 $56 $257,703 $2,764


U.S. Government sponsored entitiesasset-backed securities $ 50 $ 1 $ — $— $ 50 $ 1

The amortized cost and estimated fair value of investments in debt securities atDecember 31, 2010, are shown in the following table by contractual maturity orthe expected call date, except for asset-backed securities, which are shown as asingle total, due to the unpredictability of the timing in principal repayments.

Amortized Estimated(In thousands) Cost Fair Value

Securities Available-for-SaleU.S. Treasury and sponsored entities notes:

Due within one year $149,986 $ 152,913

Due one through five years 54,335 52,627

Due five through ten years 67,980 67,773

Total $272,301 $ 273,313

Obligations of states and political subdivisions:

Due within one year $ 7,999 $ 8,195

Due one through five years 1,805 1,879

Due over ten years 1,011 970

Total $ 10,815 $ 11,044

U.S. Government sponsored entities asset-backed securities:

Total $990,204 $1,011,412

Securities Held-to-MaturityObligations of states and

political subdivisions:Due within one year $ 2,382 $ 2,389

Due one through five years 785 785

Total $ 3,167 $ 3,174

U.S. Government sponsored entities asset-backed securities:

Total $670,403 $ 682,940

All of Park’s securities shown in the above table as U.S. Treasury and

have a final maturity in 8 to 12 years, but are shown in the table at theirexpected call date.

Investment securities having a book value of $1,481 million and $1,720 millionat December 31, 2010 and 2009, respectively, were pledged to collateralizegovernment and trust department deposits in accordance with federal and staterequirements and to secure repurchase agreements sold, and as collateral forFederal Home Loan Bank (FHLB) advance borrowings.

At December 31, 2010, $736 million was pledged for government and trustdepartment deposits, $668 million was pledged to secure repurchase agree-ments and $77 million was pledged as collateral for FHLB advance borrowings.

sponsored entities notes are callable notes. These callable securities


At December 31, 2009, $952 million was pledged for government and trustdepartment deposits, $658 million was pledged to secure repurchase agree-ments and $110 million was pledged as collateral for FHLB advanceborrowings.

During 2010, Park’s management sold investment securities during the first, second and fourth quarters. In total, these sales resulted in proceeds of $460.2 million and a pre-tax gain of $11.9 million.

5. LOANS The composition of the loan portfolio is as follows:

December 31 (In thousands) 2010 2009

Commercial, financial and agricultural $ 737,902 $ 751,277Real estate:

Commercial 1,226,616 1,130,672Construction 406,480 495,518Residential 1,692,209 1,555,390

Consumer 666,871 704,430Leases 2,607 3,145

Total loans $4,732,685 $4,640,432

The composition of the loan portfolio, by class of loan, as of December 31,2010 is as follows:

AccruedLoan Interest Recorded

(In thousands) Balance Receivable Investment

Commercial, financial and agricultural* $ 737,902 $ 2,886 $ 740,788Commercial real estate* 1,226,616 4,804 1,231,420Construction real estate:

Vision commercial landand development 171,334 282 171,616

Remaining commercial 195,693 622 196,315Mortgage 26,326 95 26,421Installment 13,127 54 13,181

Residential real estate:Commercial 464,903 1,403 466,306Mortgage 906,648 2,789 909,437HELOC 260,463 1,014 261,477Installment 60,195 255 60,450

Consumer 666,871 3,245 670,116Leases 2,607 56 2,663

Total loans $4,732,685 $17,505 $4,750,190

*Included within commercial, financial and agricultural loans and commercial real estateloans are an immaterial amount of consumer loans that are not broken out by class.

Loans are shown net of deferred origination fees, costs and unearned income of $6.7 million at December 31, 2010 and $6.3 million at December 31, 2009.

Overdrawn deposit accounts of $2.6 million and $3.3 million have been reclassified to loans at December 31, 2010 and 2009, respectively.

Nonperforming loans are summarized as follows at December 31, 2009:December 31 (In thousands) 2009

Impaired loans:Nonaccrual $201,001Restructured (accruing) 142

Total impaired loans 201,143Other nonaccrual loans 32,543

Total nonaccrual and restructured loans $233,686

Loans past due 90 days or more and accruing 14,773

Total nonperforming loans $248,459

The following table presents the recorded investment in nonaccrual, restruc-tured, and loans past due 90 days or more and still accruing by class of loans as of December 31, 2010:

Loans Past DueAccruing 90 Days Total

Nonaccrual Restructured or More Nonperforming(In thousands) Loans Loans and Accruing Loans

Commercial, financial and agricultural $ 19,276 $ — $ — $ 19,276

Commercial real estate 57,941 — 20 57,961Construction real estate:

Vision commercial landand development 87,424 — — 87,424

Remaining commercial 27,080 — — 27,080Mortgage 354 — — 354Installment 417 — 13 430

Residential real estate:Commercial 60,227 — — 60,227Mortgage 32,479 — 2,175 34,654HELOC 964 — 149 1,113Installment 1,195 — 277 1,472

Consumer 1,911 — 1,059 2,970Leases — — — —

Total loans $289,268 $ — $3,693 $292,961

The following table provides additional information regarding those nonaccrualloans that are individually evaluated for impairment and those collectively evalu-ated for impairment at December 31, 2010.

Loans LoansIndividually Collectively

Evaluated for Evaluated for(In thousands) Nonaccrual Impairment Impairment

Commercial, financial and agricultural $ 19,276 $ 19,205 $ 71Commercial real estate 57,941 57,930 11Construction real estate:

Vision commercial landand development 87,424 86,491 933

Remaining commercial 27,080 27,080 —Mortgage 354 — 354Installment 417 — 417

Residential real estate:Commercial 60,227 60,227 —Mortgage 32,479 — 32,479HELOC 964 — 964Installment 1,195 — 1,195

Consumer 1,911 — 1,911Leases — — —

Total loans $289,268 $250,933 $38,335

The majority of the loans individually evaluated for impairment were evaluatedusing the fair value of the collateral or present value of expected future cashflows as the measurement method.

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At December 31, 2010, there were no holdings of securities of any one issuer,other than the U.S. Government and its sponsored entities, in an amount greater than 10% of shareholders’ equity.

During the first quarter of 2010, Park sold $200.7 million of U.S. Government sponsored entity mortgage-backed securities for a pre-tax gain of $8.3 million. During the second quarter of 2010, Park sold $57 million of U.S. Government sponsored entity mortgage-backed securities for a pre-tax gain of $3.5 million. During the fourth quarter of 2010, Park sold $115.8 million of U.S. Government sponsored entity callable notes for a small gain of $45,000.

During 2009, Park sold $204.3 million of U.S. Government sponsored entity mortgage-backed securities, realizing a pre-tax gain of $7.3 million. No gross losses were realized in 2010 or 2009.


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Impaired loans were as follows at December 31, 2009:December 31 (In thousands) 2009

Year-end loans with no allocated allowancefor loan losses $ 77,487

Year-end loans with allocated allowancefor loan losses 123,656

Total $201,143

Amount of the allowance for loan losses allocated $ 36,721

The following table presents loans individually evaluated for impairment byclass of loans as of December 31, 2010.

Unpaid Allowance forPrincipal Recorded Loan Losses

(In thousands) Balance Investment Allocated

With no related allowance recordedCommercial, financial

and agricultural $ 9,347 $ 8,891 $ —Commercial real estate 24,052 19,697 —Construction real estate:

Vision commercial landand development 23,021 20,162 —

Remaining commercial 15,192 14,630 —Residential real estate:

Commercial 51,261 47,009 —

With an allowance recordedCommercial, financial

and agricultural 11,801 10,314 3,028Commercial real estate 42,263 38,233 10,001Construction real estate:

Vision commercial landand development 92,122 66,329 23,585

Remaining commercial 20,676 12,450 2,802Residential real estate:

Commercial 14,799 13,218 4,043

Total $304,534 $250,933 $43,459

Management’s general practice is to proactively charge down loans individuallyevaluated for impairment to the fair value of the underlying collateral. AtDecember 31, 2010, there were $12.5 million in partial charge-offs on loansindividually evaluated for impairment with no related allowance recorded andan additional $41.1 million of partial charge-offs on loans individually evaluatedfor impairment that also had a specific reserve allocated.

The allowance for loan losses included specific reserves related to loans individually evaluated for impairment at December 31, 2010 and 2009, of$43.5 million and $36.7 million, respectively, related to loans with a recordedinvestment of $140.5 million and $123.7 million.

The average balance of loans individually evaluated for impairment was $210.4 million, $184.7 million and $130.6 million for 2010, 2009 and 2008,respectively.

Interest income on loans individually evaluated for impairment is recognized on a cash basis after all past due and current principal payments have beenmade. For the year ended December 31, 2010, the Corporation recognized a net reversal to interest income of $1.3 million, consisting of $948,000 ininterest recognized at PNB and $2.2 million in interest reversed at Vision, on loans that were individually evaluated for impairment as of the end of theyear. For the year ended December 31, 2009, the Corporation recognized a net reversal to interest income of $1.3 million, consisting of $1.8 million in interestrecognized at PNB and $3.1 million in interest reversed at Vision, on loans thatwere individually evaluated for impairment as of the end of the year. For theyear ended December 31, 2008, the Corporation recognized $0.9 million in interest income, consisting of $2.8 million in interest recognized at PNB and $1.9 million in interest reversed at Vision.

The following table presents the aging of the recorded investment in past dueloans as of December 31, 2010 by class of loans.

Past DueNonaccrual

Accruing Loans and LoansLoans Past Due 90 Total

Past Due Days or More Total Total Recorded(In thousands) 30–89 Days and Accruing Past Due Current Investment


Commercial real estate 9,521 53,269 62,790 1,168,630 1,231,420Construction real estate:

Vision commercial landand development 2,406 65,130 67,536 104,080 171,616

Remaining commercial 141 19,687 19,828 176,487 196,315Mortgage 479 148 627 25,794 26,421Installment 235 399 634 12,547 13,181

Residential real estate:Commercial 3,281 26,845 30,126 436,180 466,306Mortgage 17,460 24,422 41,882 867,555 909,437HELOC 1,396 667 2,063 259,414 261,477Installment 1,018 892 1,910 58,540 60,450

Consumer 11,204 2,465 13,669 656,447 670,116Leases 5 — 5 2,658 2,663

Total loans $49,393 $209,546 $258,939 $4,491,251 $4,750,190

Management’s policy is to initially place all renegotiated loans (troubled debt restructurings) on nonaccrual status. At December 31, 2010, there were$80.7 million of troubled debt restructurings included in nonaccrual loantotals. Many of these troubled debt restructurings are performing under therenegotiated terms. At December 31, 2010, of the $80.7 million in troubleddebt restructurings, $50.3 million were included within current loans presentedabove. Management will continue to review the renegotiated loans and maydetermine it appropriate to move certain of these loans back to accrual status in the future. At December 31, 2010, Park had commitments to lend $434,000of additional funds to borrowers whose terms had been modified in a troubleddebt restructuring.

Management utilizes past due information as a credit quality indicator across the loan portfolio. The past due information is the primary credit quality indicator within the following classes of loans: (1) mortgage loans and installment loans in the construction real estate segment; (2) mortgageloans, HELOC and installment loans in the residential real estate segment; and (3) consumer loans. The primary credit indicator for commercial loans is based on an internal grading system that grades all commercial loans from 1 to 8. Credit grades are continuously monitored by the respective loan officerand adjustments are made when appropriate. A grade of 1 indicates little or no credit risk and a grade of 8 is considered a loss. Commercial loans withgrades of 1 to 4 (pass-rated) are considered to be of acceptable credit risk.Commercial loans graded a 5 (special mention) are considered to be watch list credits and a higher loan loss reserve percentage is allocated to these loans.Loans classified as special mention have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknessesmay result in deterioration of the repayment prospects for the loan or of theinstitution’s credit position at some future date. Commercial loans graded 6(substandard), also considered watch list credits, are considered to representhigher credit risk and, as a result, a higher loan loss reserve percentage is allocated to these loans. Loans classified as substandard loans are inadequatelyprotected by the current sound worth and paying capacity of the obligor or ofthe collateral pledged, if any. Loans so classified have a well defined weaknessor weaknesses that jeopardize the liquidation of the debt. They are character-ized by the distinct possibility that the institution will sustain some loss if thedeficiencies are not corrected. Commercial loans that are graded a 7 (doubtful)are shown as non performing and Park generally charges these loans down totheir fair value by taking a partial charge-off or recording a specific reserve.


Loans classified as doubtful have all the weaknesses inherent in those classifiedas substandard with the added characteristic that the weaknesses make collec-tion or liquidation in full, on the basis of currently existing facts, conditions,and values, highly questionable and improbable. Any commercial loan gradedan 8 (loss) is completely charged-off. The table below presents the recordedinvestment by loan grade at December 31, 2010 for all commercial loans:

Pass Recorded(In thousands) 5 Rated 6 Rated Nonaccrual Rated Investment


Commercial real estate 57,394 26,992 57,941 1,089,093 1,231,420Construction real estate:

Vision commercial landand development 10,220 7,941 87,424 66,031 171,616

Remaining commercial 14,021 39,062 27,080 116,152 196,315Residential real estate:

Commercial 29,206 18,117 60,227 358,756 466,306Leases — — — 2,663 2,663

Total commercial loans $137,163 $103,559 $251,948 $2,316,438 $2,809,108

Management transfers a loan to other real estate owned at the time that Parktakes possession of the asset. At December 31, 2010 and 2009, Park had $44.3million and $41.2 million, respectively, of other real estate owned. Other realestate owned at Vision Bank has increased from $35.2 million at December 31,2009 to $35.9 million at December 31, 2010.

Certain of the Corporation’s executive officers and directors are loan customersof the Corporation’s two banking subsidiaries. As of December 31, 2010 and2009, loans and lines of credit aggregating approximately $53.6 million and$56.8 million, respectively, were outstanding to such parties. During 2010, $2.1 million of new loans were made to these executive officers and directors

and repayments totaled $5.3 million. New loans and repayments for 2009 were$27.9 million and $9.5 million, respectively. Additionally, during 2009, $20.8million in loans were removed from the aggregate amount reported due to the resignation of certain directors.

6. ALLOWANCE FOR LOAN LOSSESActivity in the allowance for loan losses is summarized as follows:

(In thousands) 2010 2009 2008

Average loans $4,642,478 $4,594,436 $4,354,520

Allowance for loan losses:Beginning balance $ 116,717 $ 100,088 $ 87,102

Charge-offs:Commercial, financial and agricultural 8,484 10,047 2,953Commercial real estate 7,748 5,662 4,126Construction real estate 23,308 21,956 34,052Residential real estate 18,401 11,765 12,600Consumer 8,373 9,583 9,181Lease financing — 9 4

Total charge-offs 66,314 59,022 62,916

Recoveries:Commercial, financial and agricultural 1,237 1,010 861Commercial real estate 850 771 451Construction real estate 813 1,322 137Residential real estate 1,429 1,723 1,128Consumer 1,763 2,001 2,807Lease financing — 3 31

Total recoveries 6,092 6,830 5,415

Net charge-offs 60,222 52,192 57,501


Ending balance $ 121,397 $ 116,717 $ 100,088

Ratio of net charge-offs to average loans 1.30% 1.14% 1.32%Ratio of allowance for loan losses to

end of period loans 2.57% 2.52% 2.23%

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The composition of the allowance for loan losses at December 31, 2010 was as follows:

Commercial,Financial and Commercial Construction Residential

(In thousands) Agricultural Real Estate Real Estate Real Estate Consumer Leases Total

Allowance for loan losses:Ending allowance balance attributed to loans

Individually evaluated for impairment $ 3,028 $ 10,001 $ 26,387 $ 4,043 $ — $ — $ 43,459

Collectively evaluated for impairment 10,556 18,514 19,807 21,802 7,228 31 77,938

Total ending allowance balance $ 13,584 $ 28,515 $ 46,194 $ 25,845 $ 7,228 $ 31 $ 121,397

Loan balance:Loans individually evaluated for impairment $ 19,205 $ 57,930 $113,571 $ 60,227 $ — $ — $ 250,933

Loans collectively evaluated for impairment 718,697 1,168,686 292,909 1,631,982 666,871 2,607 4,481,752

Total ending loan balance $737,902 $1,226,616 $406,480 $1,692,209 $666,871 $2,607 $4,732,685

Allowance for loan losses as a percentage ofloan balance:

Loans individually evaluated for impairment 15.77% 17.26% 23.23% 6.71% — — 17.32%

Loans collectively evaluated for impairment 1.47% 1.58% 6.76% 1.34% 1.08% 1.19% 1.74%

Total ending loan balance 1.84% 2.32% 11.36% 1.53% 1.08% 1.19% 2.57%

Recorded investment:Loans individually evaluated for impairment $ 19,205 $ 57,930 $113,571 $ 60,227 $ — $ — $ 250,933

Loans collectively evaluated for impairment 721,583 1,173,490 293,962 1,637,443 670,116 2,663 4,499,257

Total ending loan balance $740,788 $1,231,420 $407,533 $1,697,670 $670,116 $2,663 $4,750,190


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The composition of the allowance for loan losses at December 31, 2009 was as follows:

Outstanding Allowance ALL as a % of(In thousands) Loan Balance for Loan Losses Loan Balance

Loans collectively evaluatedfor impairment $4,439,289 $ 79,996 1.80%

Loans indivdually evaluatedfor impairment 201,143 36,721 18.26%

Total loans and allowance for loan losses $4,640,432 $116,717 2.52%

Loans collectively evaluated for impairment above include all performing loansat December 31, 2010 and 2009, as well as nonperforming loans internallyclassified as consumer loans. Nonperforming consumer loans are not typicallyevaluated for impairment, but receive a portion of the statistical allocation ofthe allowance for loan losses. Loans individually evaluated for impairmentabove include all impaired loans internally classified as commercial loans at December 31, 2010 and 2009, which are evaluated for impairment in accordance with GAAP (see Note 1 of these Notes to Consolidated FinancialStatements).

7. PREMISES AND EQUIPMENTThe major categories of premises and equipment and accumulated depreciation are summarized as follows:


Land $ 23,827 $ 23,257

Buildings 78,185 75,583

Equipment, furniture and fixtures 61,086 56,822

Leasehold improvements 6,031 6,080

Total $169,129 $161,742

Less accumulated depreciation and amortization (99,562) (92,651)

Premises and equipment, net $ 69,567 $ 69,091

Depreciation and amortization expense amounted to $7.1 million, $7.5 millionand $7.5 million for the years ended December 31, 2010, 2009 and 2008,respectively.

The Corporation leases certain premises and equipment accounted for as operating leases. The following is a schedule of the future minimum rental payments required for the next five years under such leases with initial terms in excess of one year:

(In thousands)

2011 $ 1,987

2012 1,786

2013 1,629

2014 1,416

2015 1,161

Thereafter 4,103

Total $12,082

Rent expense was $2.6 million, $2.8 million and $2.8 million, for the yearsended December 31, 2010, 2009 and 2008, respectively.

8. DEPOSITSAt December 31, 2010 and 2009, noninterest bearing and interest bearingdeposits were as follows:


Noninterest bearing $ 937,719 $ 897,243

Interest bearing 4,157,701 4,290,809

Total $5,095,420 $5,188,052

At December 31, 2010, the maturities of time deposits were as follows:

(In thousands)

2011

2012

2013

2014 69,535

2015 73,612

After 5 years 2,369

Total $1,973,903

At December 31, 2010, Park had approximately $17.2 million of depositsreceived from executive officers, directors, and their related interests.

were:

December 31 (In thousands)

3 months or less

Over 3 months through 6 months

Over 6 months through 12 months

Over 12 months

Total

within the 3 months or less maturity category.

9. SHORT-TERM BORROWINGSShort-term borrowings were as follows:


Securities sold under agreements to repurchase and federal funds purchased $279,669 $294,219

Federal Home Loan Bank advances 384,000 30,000

Total short-term borrowings $663,669 $324,219

The outstanding balances for all short-term borrowings as of December 31,2010 and 2009 and the weighted-average interest rates as of and paid duringeach of the years then ended were as follows:

Repurchase DemandAgreements Federal Notesand Federal Home Loan Due U.S.

Funds Bank Treasury(In thousands) Purchased Advances and Other

2010:Ending balance $279,669 $384,000 $ —Highest month-end balance 295,467 384,000 —Average daily balance 269,260 31,679 —Weighted-average interest rate:

As of year-end 0.32% 0.19% —Paid during the year 0.39% 0.39% —

2009:Ending balance $294,219 $ 30,000 $ —Highest month-end balance 303,972 442,000 —Average daily balance 281,941 137,792 —Weighted-average interest rate:

As of year-end 0.49% 0.49% —Paid during the year 0.82% 0.66% —

At December 31, 2010, 2009 and 2008, Federal Home Loan Bank (FHLB) advances were collateralized by investment securities owned by the Corporation’s subsidiary banks and by various loans pledged under a blanket agreement by the Corporation’s subsidiary banks.

See Note 4 of these Notes to Consolidated Financial Statements for the amount of investment securities that are pledged. At December 31, 2010,$2,071 million of commercial real estate and residential mortgage loans werepledged under a blanket agreement to the FHLB by Park’s subsidiary banks. AtDecember 31, 2009, $1,959 million of commercial real estate and residentialmortgage loans were pledged under a blanket agreement to the FHLB by Park’ssubsidiary banks.

$1,421,409

323,421

83,557

Maturities of time deposits of over $100,000 as of December 31, 2010

$ 344,820

162,069

212,494

180,454

$ 899,837

Note: The table above includes brokered deposits of $104.1 million that are included


Note 4 states that $668 million and $658 million of securities were pledged to secure repurchase agreements as of December 31, 2010 and 2009, respec-tively. Park’s repurchase agreements in short-term borrowings consist ofcustomer accounts and securities which are pledged on an individual securitybasis. Park’s repurchase agreements with a third-party financial institution areclassified in long-term debt. See Note 10 of these Notes to ConsolidatedFinancial Statements.

10. LONG-TERM DEBTLong-term debt is listed below:

December 31 2010 2009Outstanding Average Outstanding Average

(In thousands) Balance Rate Balance Rate

Total Federal Home Loan Bank advancesby year of maturity:

2010 $ — — $ 17,560 5.68%2011 16,460 1.99% 16,460 1.99%2012 15,500 2.09% 15,500 2.09%2013 500 4.03% 500 4.03%2014 500 4.23% 500 4.23%2015 — 0.00% — —Thereafter 302,342 3.02% 302,371 3.02%

Total $335,302 2.93% $352,891 3.05%

Total broker repurchase agreementsby year of maturity:

After 2015 $300,000 4.04% $300,000 4.04%

Total $300,000 4.04% $300,000 4.04%

Other borrowings by year of maturity:2010 $ — — $59 7.97%2011 63 7.97% 63 7.97%2012 69 7.97% 69 7.97%2013 74 7.97% 74 7.97%2014 81 7.97% 81 7.97%2015 87 7.97% 87 7.97%Thereafter 1,057 7.97% 1,057 7.97%

Total $ 1,431 7.97% $ 1,490 7.97%

Total combined long-term debtby year of maturity:

2010 $ — — $ 17,619 5.69%2011 16,523 2.01% 16,523 2.01%2012 15,569 2.12% 15,569 2.12%2013 574 4.54% 574 4.54%2014 581 4.75% 581 4.75%2015 87 7.97% 87 7.97%Thereafter 603,399 3.54% 603,428 3.54%

Total $636,733 3.46% $654,381 3.52%

Other borrowings consist of a capital lease obligation of $1.4 million, pertaining to an arrangement that was part of the acquisition of Vision on March 9, 2007 and its associated minimum lease payments.

Park had approximately $603.4 million of long-term debt at December 31,2010 with a contractual maturity longer than five years. However, approximately$600 million of this debt is callable by the issuer in 2011.

At December 31, 2010 and 2009, Federal Home Loan Bank (FHLB) advanceswere collateralized by investment securities owned by the Corporation’s sub-sidiary banks and by various loans pledged under a blanket agreement by theCorporation’s subsidiary banks.

See Note 4 of these Notes to Consolidated Financial Statements for the amount of investment securities that are pledged. See Note 9 of these Notes to Consolidated Financial Statements for the amount of commercial real estate and residential mortgage loans that are pledged to the FHLB.

11. SUBORDINATED DEBENTURES/NOTESAs part of the acquisition of Vision on March 9, 2007, Park became the successor to Vision under (i) the Amended and Restated Trust Agreement of Vision Bancshares Trust I (the “Trust”), dated as of December 5, 2005, (ii) the Junior Subordinated Indenture, dated as of December 5, 2005, and (iii) the Guarantee Agreement, also dated as of December 5, 2005.

On December 1, 2005, Vision formed a wholly-owned Delaware statutory business trust, Vision Bancshares Trust I (“Trust I”), which issued $15.0million of the Trust’s floating rate preferred securities (the “Trust PreferredSecurities”) to institutional investors. These Trust Preferred Securities qualify as Tier I capital under Federal Reserve Board guidelines. All of the commonsecurities of Trust I are owned by Park. The proceeds from the issuance of thecommon securities and the Trust Preferred Securities were used by Trust I topurchase $15.5 million of junior subordinated notes, which carry a floating ratebased on a three-month LIBOR plus 148 basis points. The debentures representthe sole asset of Trust I. The Trust Preferred Securities accrue and pay distribu-tions at a floating rate of three-month LIBOR plus 148 basis points per annum.The Trust Preferred Securities are mandatorily redeemable upon maturity of thenotes in December 2035, or upon earlier redemption as provided in the notes.Park has the right to redeem the notes purchased by Trust I in whole or in part,on or after December 30, 2010. As specified in the indenture, if the notes areredeemed prior to maturity, the redemption price will be the principal amount,plus any unpaid accrued interest.

In accordance with GAAP, Trust I is not consolidated with Park’s financial statements, but rather the subordinated notes are reflected as a liability.

On December 28, 2007, one of Park’s wholly-owned subsidiary banks, The Park National Bank (“PNB”), entered into a Subordinated DebenturePurchase Agreement with USB Capital Funding Corp. Under the terms of thePurchase Agreement, USB Capital Funding Corp. purchased from PNB aSubordinated Debenture dated December 28, 2007, in the principal amount of $25 million, which matures on December 29, 2017. The SubordinatedDebenture is intended to qualify as Tier 2 capital under the applicable regula-tions of the Office of the Comptroller of the Currency of the United States ofAmerica (the “OCC”). The Subordinated Debenture accrues and pays interest at a floating rate of three-month LIBOR plus 200 basis points. The SubordinatedDebenture may not be prepaid in any amount prior to December 28, 2012;however, subsequent to that date, PNB may prepay, without penalty, all or a portion of the principal amount outstanding in a minimum amount of $5million or any larger multiple of $5 million. The three-month LIBOR rate was 0.30% at December 31, 2010. On January 2, 2008, Park entered into an interest rate swap transaction, which was designated as a cash flow hedgeagainst the variability of cash flows related to the Subordinated Debenture of$25 million (see Note 19 of these Notes to Consolidated Financial Statements).

On December 23, 2009, Park entered into a Note Purchase Agreement, dated December 23, 2009, with 38 purchasers (the “Purchasers”). Under theterms of the Note Purchase Agreement, the Purchasers purchased from Park anaggregate principal amount of $35.25 million of 10% Subordinated Notes dueDecember 23, 2019 (the “Notes”). The Notes are intended to qualify as Tier 2Capital under applicable rules and regulations of the Board of Governors of theFederal Reserve System (the “Federal Reserve Board”). The Notes may not beprepaid in any amount prior to December 23, 2014; however, subsequent tothat date, Park may prepay, without penalty, all or a portion of the principalamount outstanding. Of the $35.25 million in Notes, $14.05 million were purchased by related parties.

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12. STOCK OPTION PLANThe Park National Corporation 2005 Incentive Stock Option Plan (the “2005Plan”) was adopted by the Board of Directors of Park on January 18, 2005, and was approved by the shareholders at the Annual Meeting of Shareholderson April 18, 2005. Under the 2005 Plan, 1,500,000 common shares are authorized for delivery upon the exercise of incentive stock options. All of the common shares delivered upon the exercise of incentive stock optionsgranted under the 2005 Plan are to be treasury shares. At December 31, 2010,1,421,925 common shares were available for future grants under the 2005Plan. Under the terms of the 2005 Plan, incentive stock options may be grantedat a price not less than the fair market value at the date of the grant, and for anoption term of up to five years. No additional incentive stock options may begranted under the 2005 Plan after January 17, 2015.

The fair value of each incentive stock option granted is estimated on the date of grant using a closed form option valuation (Black-Scholes) model. Expectedvolatilities are based on historical volatilities of Park’s common stock. TheCorporation uses historical data to estimate option exercise behavior. Theexpected term of incentive stock options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the incentive stock options is based on the U.S. Treasury yield curve in effect at the time of the grant.

The activity in the 2005 Plan is listed in the following table for 2010:

Weighted AverageNumber Exercise Price per Share

January 1, 2010 254,892 $ 97.78Granted — —Exercised — —Forfeited/Expired 176,817 107.85

December 31, 2010 78,075 $ 74.96

Exercisable at year end 78,075Weighted-average remaining contractual life 1.94 yearsAggregate intrinsic value $0

There were no options granted or exercised in 2010, 2009 or 2008.Additionally, no expense was recognized for 2010, 2009 or 2008.

13. BENEFIT PLANSThe Corporation has a noncontributory Defined Benefit Pension Plan (the“Pension Plan”) covering substantially all of the employees of the Corporationand its subsidiaries. The Pension Plan provides benefits based on an employee’syears of service and compensation.

The Corporation’s funding policy is to contribute annually an amount that canbe deducted for federal income tax purposes using a different actuarial costmethod and different assumptions from those used for financial reporting purposes. Management made a $20 million contribution in January 2009,which was deductible on the 2008 tax return and as such was reflected as partof the deferred tax liabilities at December 31, 2008. In addition, managementmade a $10 million contribution in November 2009, which was deductible onthe 2009 tax return and as such is reflected as part of deferred tax liabilities atDecember 31, 2009. Management contributed $2 million in September 2010,which will be deductible on the 2010 tax return and is reflected in deferred taxliabilities at December 31, 2010. In January 2011, management contributed$14 million, of which $12.4 million will be deductible on the 2010 tax returnand $1.6 million on the 2011 tax return. The entire $12.4 million deductible on the 2010 tax return is reflected as part of the deferred tax liabilities atDecember 31, 2010. See Note 14 of these Notes to Consolidated FinancialStatements. Park does not expect to make any additional contributions to thePension Plan in 2011.

Using an accrual measurement date of December 31, 2010 and 2009, planassets and benefit obligation activity for the Pension Plan are listed below:

(In thousands) 2010 2009

Change in fair value of plan assets

Fair value at beginning of measurement period $75,815 $38,506

Actual return on plan assets 11,296 11,689

Company contributions 2,000 30,000

Benefits paid (3,647) (4,380)

Fair value at end of measurement period $85,464 $75,815

Change in benefit obligation

Projected benefit obligation at beginning of measurement period $60,342 $57,804

Service cost 3,671 3,813

Interest cost 3,583 3,432

Actuarial loss or (gain) 10,215 (327)

Benefits paid (3,647) (4,380)

Projected benefit obligation at the end of measurement period $74,164 $60,342

Funded status at end of year (assets less benefit obligation) $11,300 $15,473

The asset allocation for the Pension Plan as of the measurement date, by assetcategory, was as follows:

Percentage of Plan AssetsAsset Category Target Allocation 2010 2009

Equity securities 50% – 100% 86% 83%Fixed income and cash equivalents remaining balance 14% 17%

Total — 100% 100%

The investment policy, as established by the Retirement Plan Committee, is to invest assets according to the target allocation stated above. Assets will bereallocated periodically based on the investment strategy of the Retirement Plan Committee. The investment policy is reviewed periodically.

The expected long-term rate of return on plan assets was 7.75% in 2010 and 2009. This return was based on the expected return of each of the assetcategories, weighted based on the median of the target allocation for each class.

The accumulated benefit obligation for the Pension Plan was $63.5 million and $52.6 million at December 31, 2010 and 2009, respectively.

On November 17, 2009, the Park Pension Plan completed the purchase of115,800 common shares of Park for $7.0 million or $60.45 per share. AtDecember 31, 2010 and 2009, the fair value of the 115,800 common sharesheld by the Pension Plan was $8.4 million, or $72.67 per share and $6.8million, or $58.88 per share, respectively.

The weighted average assumptions used to determine benefit obligations atDecember 31, 2010 and December 31, 2009 were as follows:

2010 2009

Discount rate 5.50% 6.00%Rate of compensation increase 3.00% 3.00%

The estimated future pension benefit payments reflecting expected futureservice for the next ten years are shown below in thousands:

2011 $ 4,1142012 4,3722013 5,4322014 5,9572015 6,1462016 – 2020 35,867

Total $61,888


The following table shows ending balances of accumulated othercomprehensive income (loss) at December 31, 2010 and 2009.


Prior service cost $ (93) $ (115)Net actuarial loss (24,410) (20,654)

Total (24,503) (20,769)

Deferred taxes 8,576 7,269

Accumulated other comprehensive loss $(15,927) $(13,500)

Using an actuarial measurement date of December 31 for 2010, 2009 and2008, components of net periodic benefit cost and other amounts recognized inother comprehensive income (loss) were as follows:

(In thousands) 2010 2009 2008

Components of net periodic benefit cost and other amounts recognized in Other Comprehensive Income (Loss)Service cost $(3,671) $ (3,813) $ (3,451)Interest cost (3,583) (3,432) (3,157)Expected return on plan assets 5,867 4,487 4,608Amortization of prior service cost (22) (34) (34)Recognized net actuarial loss (1,079) (2,041) —

Net periodic benefit cost $(2,488) $ (4,833) $ (2,034)

Change to net actuarial (loss)/gainfor the period $(4,835) $ 7,591 $(25,000)

Amortization of prior service cost 22 34 42Amortization of net loss 1,079 2,041 —

Total recognized in other comprehensive (loss)/income (3,734) 9,666 (24,958)

Total recognized in net benefit cost and other comprehensive (loss)/income $(6,222) $ 4,833 $(26,992)

The estimated prior service costs for the Pension Plan that will be amortizedfrom accumulated other comprehensive income into net periodic benefit costover the next fiscal year is $20 thousand. The estimated net actuarial (loss)expected to be recognized in the next fiscal year is ($1.4) million.

The weighted average assumptions used to determine net periodic benefit costfor the years ended December 31, 2010 and 2009, are listed below:

2010 2009

Discount rate 6.00% 6.00%Rate of compensation increase 3.00% 3.00%Expected long-term return on plan assets 7.75% 7.75%

Management believes the 7.75% expected long-term rate of return is anappropriate assumption given historical performance of the S&P 500 Index,which management believes is a good indicator of future performance ofPension Plan assets.

The Pension Plan maintains cash in a Park National Bank savings account, with a balance of $0.7 million at December 31, 2010.

GAAP defines fair value as the price that would be received by Park for an assetor paid by Park to transfer a liability (an exit price) in an orderly transactionbetween market participants on the measurement date, using the most advan -tageous market for the asset or liability. The fair values of equity securities,consisting of mutual fund investments and common stock held by the PensionPlan and the fixed income and cash equivalents, are determined by obtainingquoted prices on nationally recognized securities exchanges (Level 1 inputs).The market value of Pension Plan assets at December 31, 2010 was $85.5million. At December 31, 2010, $73.5 million of equity investments in thePension Plan were categorized as Level 1 inputs; $12.0 million of plan invest-ments in corporate and U.S. government agency bonds are categorized as Level2 inputs, as fair value is based on quoted market prices of comparable instru-ments; and no investments are categorized as Level 3 inputs. The market valueof Pension Plan assets was $75.8 million at December 31, 2009. At December31, 2009, $63.0 million of investments in the Pension Plan were categorized asLevel 1 inputs; $12.8 million were categorized as Level 2; and no investmentswere categorized as Level 3.

The Corporation has a voluntary salary deferral plan covering substantially all of the employees of the Corporation and its subsidiaries. Eligible employeesmay contribute a portion of their compensation subject to a maximum statutorylimitation. The Corporation provides a matching contribution establishedannually by the Corporation. Contribution expense for the Corporation was $1.0million, $1.5 million, and $2.0 million for 2010, 2009 and 2008, respectively.

The Corporation has a Supplemental Executive Retirement Plan (SERP) cover-ing certain key officers of the Corporation and its subsidiaries with definedpension benefits in excess of limits imposed by federal tax law. At December 31,2010 and 2009, the accrued benefit cost for the SERP totaled $7.2 million and$7.4 million, respectively. The expense for the Corporation was $0.5 million forboth 2010 and 2009 and $0.6 million for 2008.

14. INCOME TAXESDeferred income taxes reflect the net tax effects of temporary differencesbetween the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes. Significant compo-nents of the Corporation’s deferred tax assets and liabilities are as follows:

December 31 (in thousands) 2010 2009

Deferred tax assets:Allowance for loan losses $43,958 $42,236Accumulated other comprehensive loss –

interest rate swap 572 519Accumulated other comprehensive loss –

pension plan 8,576 7,269Intangible assets 2,156 2,756Deferred compensation 4,123 4,348OREO devaluations 6,174 2,380State net operating loss carryforwards 2,812 1,725Other 4,988 5,273 Valuation allowance (712) —

Total deferred tax assets $72,647 $66,506

Deferred tax liabilities:Accumulated other comprehensive

income – unrealized gains on securities $ 8,142 $16,221Deferred investment income 10,199 10,201Pension plan 16,835 12,664Mortgage servicing rights 3,671 3,773Purchase accounting adjustments 2,150 3,228Other 2,176 1,285

Total deferred tax liabilities $43,173 $47,372

Net deferred tax assets $29,474 $19,134

Management has determined that it is not required to establish a valuationallowance against remaining deferred tax assets in accordance with GAAP since it is more likely than not that the deferred tax assets will be fully utilized in future periods.

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Park performs an analysis to determine if a valuation allowance againstdeferred tax assets is required in accordance with GAAP. Vision Bank is subjectto state income tax in Alabama and Florida. A state tax benefit of $1.16 millionwas recorded by Vision Bank, consisting of a gross benefit of $2.26 million and a valuation allowance of $1.10 million. In the schedule of deferred taxes,the valuation allowance is shown net of the federal tax benefit of $384,000.Management has determined that the likelihood of realizing the full deferred taxasset on state net operating loss carryforwards fails to meet the more likely thannot level. The net operating loss carryforward period for the state of Alabamaand Florida are 8 years and 20 years, respectively. A merger of Vision Bank intoPark National Bank would ensure the future utilization of the state net operatingloss carryforward at Vision Bank. However, management is not certain when amerger of Vision Bank into Park National Bank can take place and as a resulthas decided to record a valuation allowance against new state tax benefit of losses at Vision Bank until management has a better understanding of the timing and likelihood of a merger of Vision Bank into Park National Bank.


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The components of the provision for federal and state income taxes are shownbelow:

December 31 (in thousands) 2010 2009 2008

Currently payableFederal $26,130 $32,148 $23,645State 109 (273) (44)

DeferredFederal 345 (6,745) 697State (2,366) (2,187) (2,287)

Valuation allowanceFederal — — —State 1,096 — —

Total $25,314 $22,943 $22,011

The following is a reconciliation of federal income tax expense to the amountcomputed at the statutory rate of 35% for the years ended December 31, 2010,2009 and 2008.

December 31 2010 2009 2008

Statutory federal corporate tax rate 35.0% 35.0% 35.0%Changes in rates resulting from:

Tax-exempt interest income, net ofdisallowed interest (1.2)% (1.3)% (3.5)%

Bank owned life insurance (1.8)% (1.8)% (5.0)%Tax credits (low income housing) (5.0)% (4.8)% (11.7)%Goodwill impairment — — 50.7%State income tax expense, net of

federal benefit (1.5)% (1.6)% (4.2)%Valuation allowance, net of

federal benefit 0.7% — —Other (0.8)% (1.9)% 0.3%

Effective tax rate 25.4% 23.6% 61.6%

Park and its Ohio-based subsidiaries do not pay state income tax to the state of Ohio, but pay a franchise tax based on their year-end equity. The franchise tax expense is included in the state tax expense and is shown in “state taxes” on Park’s Consolidated Statements of Income. Vision Bank is subject to stateincome tax, in the states of Alabama and Florida. State income tax benefit forVision Bank is included in “income taxes” on Park’s Consolidated Statements of Income. Vision Bank’s 2010 state income tax benefit was $1.16 million, netof the recorded valuation allowance.

Unrecognized Tax BenefitsThe following is a reconciliation of the beginning and ending amount of unrecognized tax benefits.

(In thousands) 2010 2009 2008

January 1 Balance $595 $783 $828Additions based on tax

positions related to the current year 69 64 102

Additions for tax positions of prior years 7 — 18

Reductions for tax positions of prior years (131) (189) (15)

Reductions due to statute of limitations (63) (63) (150)

December 31 Balance $477 $595 $783

The amount of unrecognized tax benefits that, if recognized, would favorablyaffect the effective income tax rate in the future periods at December 31, 2010,2009 and 2008 was $370,000, $504,000 and $704,000, respectively. Park doesnot expect the total amount of unrecognized tax benefits to significantly increaseor decrease during the next year.

The (income)/expense related to interest and penalties recorded in theConsolidated Statements of Income for the years ended December 31, 2010,2009 and 2008 was $(10,500), $(18,000) and $16,000, respectively. Theamount accrued for interest and penalties at December 31, 2010, 2009 and2008 was $60,500, $71,000 and $89,000, respectively.

Park and its subsidiaries are subject to U.S. federal income tax. Some of Park’ssubsidiaries are subject to state income tax in the following states: Alabama,Florida, California and Kentucky. Park is no longer subject to examination byfederal or state taxing authorities for the tax year 2006 and the years prior.

The 2007 and 2008 federal income tax returns of Park National Corporationare currently under examination by the Internal Revenue Service. Additionally,the 2009 State of Ohio franchise tax return is currently under examination. Park does not expect material adjustments from the examinations.

15. OTHER COMPREHENSIVE INCOME (LOSS)Other comprehensive income (loss) components and related taxes are shownin the following table for the years ended December 31, 2010, 2009 and 2008.

Year ended December 31 Before-Tax Tax Net-of-Tax(In thousands) Amount Effect Amount

2010:Unrealized losses on available-for-sale

securities $(11,218) $(3,926) $ (7,292)Reclassification adjustment for gains

realized in net income (11,864) (4,152) (7,712)Unrealized net holding loss on

cash flow hedge (151) (53) (98)Changes in pension plan assets and

benefit obligations recognized inOther Comprehensive Income (3,734) (1,307) (2,427)

Other comprehensive loss $(26,967) $(9,438) $(17,529)

2009:Unrealized gains on available-for-sale

securities $ 5,012 $ 1,754 $ 3,258Reclassification adjustment for gains

realized in net income (7,340) (2,569) (4,771)Unrealized net holding gain on

cash flow hedge 454 159 295Changes in pension plan assets and

benefit obligations recognized inOther Comprehensive Income 9,666 3,383 6,283

Other comprehensive income $ 7,792 $ 2,727 $ 5,065

2008:Unrealized gains on available-for-sale

securities $ 48,324 $16,913 $ 31,411Reclassification adjustment for gains

realized in net income (1,115) (390) (725)Unrealized net holding loss on

cash flow hedge (1,937) (678) (1,259)Changes in pension plan assets and

benefit obligations recognized inOther Comprehensive Income (24,958) (8,735) (16,223)

Other comprehensive income $ 20,314 $ 7,110 $ 13,204

The ending balance of each component of accumulated other comprehensiveincome (loss) was as follows as of December 31:


Pension benefit adjustments $(15,927) $(13,500)Unrealized net holding loss on cash flow hedge (1,062) (964)Unrealized net holding gains on AFS Securities 15,121 30,125

Total accumulated othercomprehensive income (loss) $ (1,868) $ 15,661


16. EARNINGS PER COMMON SHAREGAAP requires the reporting of basic and diluted earnings per common share.Basic earnings per common share excludes any dilutive effects of options, warrants and convertible securities.

The following table sets forth the computation of basic and diluted earnings per common share:

Year ended December 31(in thousands, except per share data) 2010 2009 2008

Numerator:Net income available to

common shareholders $68,410 $68,430 $13,566

Denominator:Basic earnings per common share:

Weighted-average shares 15,152,692 14,206,335 13,965,219Effect of dilutive securities – stock options

and warrants 3,043 — 114Diluted earnings per common share:

Adjusted weighted-average shares and assumed conversions 15,155,735 14,206,335 13,965,333

Earnings per common share:Basic earnings per common share $4.51 $4.82 $0.97Diluted earnings per common share $4.51 $4.82 $0.97

As of December 31, 2010 and 2009, options to purchase 78,075 and 254,892 common shares, respectively, were outstanding under Park’s 2005Plan. A warrant to purchase 227,376 common shares was outstanding at bothDecember 31, 2010 and 2009 as a result of Park’s participation in the CPP.Warrants to purchase an aggregate of 71,984 common shares were outstandingat December 31, 2010 as a result of the issuance of common stock and warrants which closed on December 10, 2010. In addition, warrants to purchase an aggregate of 500,000 common shares were outstanding atDecember 31, 2009 as a result of the issuance of common stock and warrants which closed on October 30, 2009. All warrants issued on October 30, 2009 had been exercised or expired as of December 31, 2010.

The common shares represented by the options and the warrants at December31, 2010 and 2009, totaling a weighted average of 382,445 and 642,405,respectively, were not included in the computation of diluted earnings percommon share because the respective exercise prices exceeded the marketvalue of the underlying common shares such that their inclusion would havehad an anti-dilutive effect. The warrant to purchase 227,376 common shares isnot included in the 382,445 at December 31, 2010, as the dilutive effect of thiswarrant pertaining to the CPP was 3,043 shares of common stock at December31, 2010. The exercise price of this warrant is $65.97.

17. DIVIDEND RESTRICTIONSBank regulators limit the amount of dividends a subsidiary bank can declare in any calendar year without obtaining prior approval. At December 31, 2010,approximately $52.8 million of the total stockholders’ equity of PNB was avail-able for the payment of dividends to the Corporation, without approval by theapplicable regulatory authorities. Vision Bank is currently not permitted to paydividends to the Corporation.

18. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKAND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OFCREDIT RISK

The Corporation is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.These financial instruments include loan commitments and standby letters ofcredit. The instruments involve, to varying degrees, elements of credit and inter-est rate risk in excess of the amount recognized in the consolidated financialstatements.

The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standbyletters of credit is represented by the contractual amount of those instruments.The Corporation uses the same credit policies in making commitments andconditional obligations as it does for on-balance sheet instruments. Since

many of the loan commitments may expire without being drawn upon, the totalcommitment amount does not necessarily represent future cash requirements.The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers.

The total amounts of off-balance sheet financial instruments with credit riskwere as follows:

December 31 (in thousands) 2010 2009

Loan commitments $716,598 $955,257

Standby letters of credit 24,462 36,340

The loan commitments are generally for variable rates of interest.

The Corporation grants retail, commercial and commercial real estate loans to customers primarily located in Ohio, Baldwin County, Alabama and the pan-handle of Florida. The Corporation evaluates each customer’s creditworthinesson a case-by-case basis. The amount of collateral obtained, if deemed necessaryby the Corporation upon extension of credit, is based on management’s creditevaluation of the customer. Collateral held varies but may include accountsreceivable, inventory, property, plant and equipment, and income-producingcommercial properties.

Although the Corporation has a diversified loan portfolio, a substantial portion of the borrowers’ ability to honor their contracts is dependent upon the economic conditions in each borrower’s geographic location and industry.

19. DERIVATIVE INSTRUMENTSFASB ASC 815, Derivatives and Hedging, establishes accounting and reportingstandards for derivative instruments, including certain derivative instrumentsembedded in other contracts, and for hedging activities. As required by GAAP,the Company records all derivatives on the Consolidated Balance Sheets at fairvalue. The accounting for changes in the fair value of derivatives depends on the intended use of the derivatives and the resulting designation. Derivativesused to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk,are considered fair value hedges. Derivatives used to hedge the exposure tovariability in expected future cash flows, or other types of forecasted trans -actions, are considered cash flow hedges.

For derivatives designated as cash flow hedges, the effective portion of changesin the fair value of the derivatives is initially reported in other comprehensiveincome (outside of earnings) and subsequently reclassified into earnings whenthe hedged transaction affects earnings, with any ineffective portion of changesin the fair value of the derivative recognized directly in earnings. The Companyassesses the effectiveness of each hedging relationship by comparing thechanges in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged item or transaction.

During the first quarter of 2008, the Company executed an interest rate swap tohedge a $25 million floating-rate subordinated note that was entered into byPNB during the fourth quarter of 2007. The Company’s objective in using thisderivative is to add stability to interest expense and to manage its exposure tointerest rate risk. Our interest rate swap involves the receipt of variable-rateamounts in exchange for fixed-rate payments over the life of the agreementwithout exchange of the underlying principal amount, and has been designatedas a cash flow hedge.

At December 31, 2010 and 2009, the interest rate swap’s fair value of ($1.6)million and ($1.5) million, respectively, was included in other liabilities. Nohedge ineffectiveness on the cash flow hedge was recognized during the twelvemonths ended December 31, 2010 or 2009. At December 31, 2010, the vari-able rate on the $25 million subordinated note was 2.30% (3-month LIBORplus 200 basis points) and Park was paying 6.01% (4.01% fixed rate on theinterest rate swap plus 200 basis points).

For the twelve months ended December 31, 2010 and 2009, the change in thefair value of the interest rate swap reported in other comprehensive income was a loss of $98,000 (net of taxes of $53,000) and income of $295,000 (net

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of taxes of $159,000), respectively. Amounts reported in accumulated othercomprehensive income related to the interest rate swap will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.

As of December 31, 2010 and 2009, no derivatives were designated as fair valuehedges or hedges of net investments in foreign operations. Additionally, theCompany does not use derivatives for trading or speculative purposes.

As of December 31, 2010 and December 31, 2009, Park had mortgage loaninterest rate lock commitments outstanding of approximately $14.5 million and$17.5 million, respectively. Park has specific forward contracts to sell each ofthese loans to a third party investor. These loan commitments represent deriva-tive instruments, which are required to be carried at fair value. The derivativeinstruments used are not designed as hedges under GAAP. The fair value of thederivative instruments was approximately $166,000 at December 31, 2010 and$214,000 at December 31, 2009. The fair value of the derivative instruments isincluded within loans held for sale and the corresponding income is includedwithin non-yield loan fee income. Gains and losses resulting from expectedsales of mortgage loans are recognized when the respective loan contract isentered into between the borrower, Park, and the third party investor. The fairvalue of Park’s mortgage interest rate lock commitments (IRLCs) is based oncurrent secondary market pricing.

In connection with the sale of Park’s Class B Visa shares during the 2009 year,Park entered into a swap agreement with the purchaser of the shares. The swapagreement adjusts for dilution in the conversion ratio of Class B Visa sharesresulting from certain Visa litigation. At December 31, 2010 and December 31,2009, the fair value of the swap liability of $60,000 and $500,000, respectively,is an estimate of the exposure based upon probability-weighted potential Visalitigation losses.

20. LOAN SERVICINGPark serviced sold mortgage loans of $1,471 million at December 31, 2010compared to $1,518 million at December 31, 2009, and $1,369 million atDecember 31, 2008. At December 31, 2010, $36.0 million of the sold mortgageloans were sold with recourse compared to $53 million at December 31, 2009.Management closely monitors the delinquency rates on the mortgage loans soldwith recourse. At December 31, 2010, management determined that no liabilitywas deemed necessary for these loans.

Park capitalized $3.1 million in mortgage servicing rights in 2010, $5.5 millionin 2009 and $1.5 million in 2008. Park’s amortization of mortgage servicingrights was $3.2 million in 2010, $4.0 million in 2009 and $1.7 million in 2008.The amortization of mortgage loan servicing rights is included within “Otherservice income”. Generally, mortgage servicing rights are capitalized and amortized on an individual sold loan basis. When a sold mortgage loan is paid off, the related mortgage servicing rights are fully amortized.

Activity for mortgage servicing rights and the related valuation allowancefollows:


Mortgage servicing rights:Carrying amount, net, beginning of year $10,780 $ 8,306Additions 3,062 5,480Amortization (3,180) (4,077)Change in valuation allowance (174) 1,071

Carrying amount, net, end of year $10,488 $10,780

Valuation allowance:Beginning of year $ 574 $ 1,645Additions/(reductions) expensed 174 (1,071)

End of year $ 748 $ 574

21. FAIR VALUES The fair value hierarchy requires an entity to maximize the use of observableinputs and minimize the use of unobservable inputs when measuring fair value.The three levels of inputs that Park uses to measure fair value are as follows:

■ Level 1: Quoted prices (unadjusted) for identical assets or liabilities inactive markets that Park has the ability to access as of the measurementdate.

■ Level 2: Level 1 inputs for assets or liabilities that are not actively traded.Also consists of an observable market price for a similar asset or liability.This includes the use of “matrix pricing” used to value debt securitiesabsent the exclusive use of quoted prices.

■ Level 3: Consists of unobservable inputs that are used to measure fairvalue when observable market inputs are not available. This could includethe use of internally developed models, financial forecasting and similarinputs.

Fair value is defined as the price that would be received to sell an asset or paidto transfer a liability between market participants at the balance sheet date.When possible, the Company looks to active and observable markets to priceidentical assets or liabilities. When identical assets and liabilities are not tradedin active markets, the Company looks to observable market data for similarassets and liabilities. However, certain assets and liabilities are not traded inobservable markets and Park must use other valuation methods to develop afair value. The fair value of impaired loans is based on the fair value of theunderlying collateral, which is estimated through third party appraisals or internal estimates of collateral values.

Assets and Liabilities Measured on a Recurring BasisThe following table presents financial assets and liabilities measured on a recurring basis:

Fair Value Measurements at December 31, 2010 Using:Balance at

(In thousands) Level 1 Level 2 Level 3 12/31/10

ASSETSInvestment Securities

Obligations of U.S. Treasury andOther U.S.Governmentsponsoredentities $ — $ 273,313 $ — $ 273,313

Obligations of statesand politicalsubdivisions — 8,446 2,598 11,044

U.S. Governmentsponsored entities’asset-backedsecurities — 1,011,412 — 1,011,412

Equity securities $1,008 — 745 1,753Mortgage loans

held for sale — 8,340 — 8,340Mortgage IRLCs — 166 — 166

LIABILITIESInterest rate swap $ — $ (1,634) $ — $ (1,634)Fair value swap — — (60) (60)



(In thousands) Level 1 Level 2 Level 3 12/31/09

ASSETSInvestment Securities

Obligations of U.S. Treasury andOther U.S.Governmentsponsoredentities $ — $ 347,595 $ — $ 347,595

Obligations of statesand politicalsubdivisions — 12,916 2,751 15,667

U.S. Governmentsponsored entities’asset-backedsecurities — 922,903 — 922,903

Equity securities 1,562 — — 1,562Mortgage loans

held for sale — 9,551 — 9,551Mortgage IRLCs — 214 — 214

LIABILITIESInterest rate swap $ — $ (1,483) $ — $ (1,483)Fair value swap — — (500) (500)

The following methods and assumptions were used by the Corporation in determining fair value of the financial assets and liabilities discussed above:

Investment Securities: Fair values for investment securities are based onquoted market prices, where available. If quoted market prices are not avail-able, fair values are based on quoted market prices of comparable instruments.The Fair Value Measurements tables exclude Park’s Federal Home Loan Bankstock and Federal Reserve Bank stock. These assets are carried at their respec-tive redemption values, as it is not practicable to calculate their fair values. Forsecurities where quoted prices or market prices of similar securities are notavailable, which include municipal securities, fair values are calculated usingdiscounted cash flows.

Interest Rate Swap: The fair value of the interest rate swap represents theestimated amount Park would pay or receive to terminate the agreement, considering current interest rates and the current creditworthiness of the counterparty.

Fair Value Swap: The fair value of the swap agreement entered into with thepurchaser of the Visa Class B shares represents an internally developed estimateof the exposure based upon probability-weighted potential Visa litigation losses.

Interest Rate Lock Commitments (IRLCs): IRLCs are based on current sec-ondary market pricing and are classified as Level 2.

Mortgage Loans Held for Sale: Mortgage loans held for sale are carried attheir fair value. Mortgage loans held for sale are estimated using security pricesfor similar product types and, therefore, are classified in Level 2.

The table below is a reconciliation of the beginning and ending balances of theLevel 3 inputs for the years ended December 31, 2010 and 2009, for financialinstruments measured on a recurring basis and classified as Level 3:

Level 3 Fair Value Measurements

Obligationsof States and

Political Equity Fair Value(in thousands) Subdivisions Securities Swap

Balance at December 31, 2009 $2,751 $ — $(500)

Total gains/(losses)Included in earnings – realized — — —Included in earnings – unrealized — — —

Included in Other Comprehensive Income (43) — —

Purchases, sales, issuances and settlements,other, net (110) — —

Other — — (440)

Transfers in and/or out of Level 3 — 745 —

Balance at December 31, 2010 $2,598 $745 $ (60)

Balance at December 31, 2008 $2,705 $ — $ —

Total gains/(losses)Included in earnings — — —

Included in Other Comprehensive Income 46 — —

Fair value swap — — (500)

Balance at December 31, 2009 $2,751 $ — $(500)

The fair value for several equity securities with a fair value of $745,000 as ofDecember 31, 2010 was transferred out of Level 1 and into Level 3 because of a lack of observable market data for these investments. The Company’s policy isto recognize transfers as of the end of the reporting period. As a result, the fairvalue for these equity securities was transferred on December 31, 2010.

Assets and Liabilities Measured on a Nonrecurring BasisThe following table presents financial assets and liabilities measured at fairvalue on a nonrecurring basis:


(In thousands) (Level 1) (Level 2) (Level 3) 12/31/10

Impaired loans:Commercial, financial

and agricultural $ — $ — $ 8,276 $ 8,276Commercial real estate — — 32,354 32,354Construction real estate:

Vision commercial landand development — — 45,121 45,121

Remaining commercial — — 10,202 10,202Residential real estate — — 15,304 15,304

Total impaired loans $ — $ — $111,257 $111,257

Mortgage servicingrights — 3,813 — 3,813

Other real estate owned — — 44,325 44,325


(In thousands) (Level 1) (Level 2) (Level 3) 12/31/09

Impaired loans $ — $ — $109,818 $109,818Mortgage servicing

rights — 10,780 — 10,780Other real estate owned — — 41,240 41,240

Impaired loans, which are usually measured for impairment using the fair valueof collateral or present value of expected future cash flows, had a book value of$250.9 million at December 31, 2010, after partial charge-offs of $53.6 million.In addition, these loans had a specific valuation allowance of $43.5 million. Of the $250.9 million impaired loan portfolio, loans with a book value of$154.7 million were carried at their fair value of $111.3 million, as a result ofthe aforementioned charge-offs and specific valuation allowance. The remaining$96.2 million of impaired loans were carried at cost, as the fair value of theunderlying collateral or present value of expected future cash flows on theseloans exceeded the book value for each individual credit. At December 31,2009, impaired loans had a book value of $201.1 million. Of these, $109.8million were carried at fair value, as a result of partial charge-offs of $43.4

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million and a specific valuation allowance of $36.7 million. The remaining$91.3 million of impaired loans at December 31, 2009 were carried at cost.

Mortgage servicing rights (MSRs), which are carried at the lower of cost or fair value, were recorded at $10.5 million at December 31, 2010. Of the $10.5 million MSR carrying balance at December 31, 2010, $3.8 million wasrecorded at fair value and included a valuation allowance of $748,000. Theremaining $6.7 million was recorded at cost, as the fair value exceeded the cost at December 31, 2010. MSRs do not trade in active, open markets withreadily observable prices. For example, sales of MSRs do occur, but preciseterms and conditions typically are not readily available. As such, management,with the assistance of a third party specialist, determined fair value based on the discounted value of the future cash flows estimated to be received. Significantinputs include the discount rate and assumed prepayment speeds utilized. The calculated fair value was then compared to market vales where possible to ascertain the reasonableness of the valuation in relation to current marketexpectations for similar products. Accordingly, MSRs are classified in Level 2. At December 31, 2009, MSRs were recorded at a fair value of $10.8 million,including a valuation allowance of $574,000.

Other real estate owned (OREO) is recorded at fair value based on propertyappraisals, less estimated selling costs, at the date of transfer. The carrying value of OREO is not re-measured to fair value on a recurring basis, but issubject to fair value adjustments when the carrying value exceeds the fair value,less estimated selling costs. At December 31, 2010 and 2009, the estimated fair value of OREO, less estimated selling costs amounted to $44.3 million and$41.2 million, respectively. The financial impact of OREO valuation adjustmentsfor the year ended December 31, 2010 was $10.6 million.

The following methods and assumptions were used by the Corporation in estimating its fair value disclosures for assets and liabilities not discussed above:

Cash and cash equivalents: The carrying amounts reported in theConsolidated Balance Sheets for cash and short-term instruments approximatethose assets’ fair values.

Interest bearing deposits with other banks: The carrying amountsreported in the Consolidated Balance Sheets for interest bearing deposits withother banks approximate those assets’ fair values.

Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.The fair values for certain mortgage loans (e.g., one-to-four family residential)are based on quoted market prices of similar loans sold in conjunction withsecuritization transactions, adjusted for differences in loan characteristics. The fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similarterms to borrowers of similar credit quality.

Off-balance sheet instruments: Fair values for the Corporation’s loan commitments and standby letters of credit are based on the fees currentlycharged to enter into similar agreements, taking into account the remainingterms of the agreements and the counterparties’ credit standing. The carryingamount and fair value were not material.

Deposit liabilities: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts for variable-rate,fixed-term certificates of deposit approximate their fair values at the reportingdate. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently beingoffered on certificates to a schedule of aggregated expected monthly maturitiesof time deposits.

Short-term borrowings: The carrying amounts of federal funds purchased,borrowings under repurchase agreements and other short-term borrowingsapproximate their fair values.

Long-term debt: Fair values for long-term debt are estimated using a discounted cash flow calculation that applies interest rates currently beingoffered on long-term debt to a schedule of monthly maturities.

Subordinated debentures/notes: Fair values for subordinated debenturesand notes are estimated using a discounted cash flow calculation that appliesinterest rate spreads currently being offered on similar debt structures to aschedule of monthly maturities.

The fair value of financial instruments at December 31, 2010 and December 31,2009, was as follows:

2010 2009December 31, Carrying Fair Carrying Fair(In thousands) Value Value Value Value

Financial assets:Cash and money market

instruments $ 133,780 $ 133,780 $ 159,091 $ 159,091Investment securities 1,971,092 1,983,636 1,794,641 1,811,177Accrued interest

receivable 24,137 24,137 24,354 24,354Mortgage loans

held for sale 8,340 8,340 9,551 9,551Impaired loans carried

at fair value 111,257 111,257 109,818 109,818Other loans 4,491,691 4,511,419 4,404,346 4,411,526

Loans receivable, net $4,611,288 $4,631,016 $4,523,715 $4,530,895

Financial liabilities:Noninterest bearing

checking $ 937,719 $ 937,719 $ 897,243 $ 897,243Interest bearing

transaction accounts 1,283,159 1,283,159 1,193,845 1,193,845Savings 899,288 899,288 873,137 873,137Time deposits 1,973,903 1,990,163 2,222,537 2,234,599Other 1,351 1,351 1,290 1,290

Total deposits $5,095,420 $5,111,680 $5,188,052 $5,200,114

Short-term borrowings 663,669 663,669 324,219 324,219Long-term debt 636,733 699,080 654,381 703,699Subordinated debentures/

notes 75,250 63,099 75,250 64,262Accrued interest payable 6,123 6,123 9,330 9,330

Derivative financialinstruments:Interest rate swap $ 1,634 $ 1,634 $ 1,483 $ 1,483Fair value swap 60 60 500 500

22. CAPITAL RATIOSAt December 31, 2010 and 2009, the Corporation and each of its two separatelychartered banks had Tier 1, total risk-based capital and leverage ratios whichwere well above both the required minimum levels of 4.00%, 8.00% and4.00%, respectively, and the well-capitalized levels of 6.00%, 10.00% and5.00%, respectively.

The following table indicates the capital ratios for Park and each subsidiary atDecember 31, 2010 and December 31, 2009.

2010 2009

Tier 1 Total Tier 1 TotalRisk- Risk- Risk- Risk-Based Based Leverage Based Based Leverage

Park National Bank 9.43% 11.38% 6.68% 8.81% 10.89% 6.27%

Vision Bank 18.22% 19.55% 14.05% 13.15% 14.46% 10.77%

Park 13.52% 15.98% 9.77% 12.45% 14.89% 9.04%

Failure to meet the minimum requirements above could cause the FederalReserve Board to take action. Park’s bank subsidiaries are also subject to thesecapital requirements by their primary regulators. As of December 31, 2010 and 2009, Park and its banking subsidiaries were well-capitalized and met allcapital requirements to which each was subject. There are no conditions orevents since the most recent regulatory report filings, by PNB or Vision Bank(“VB”), that management believes have changed the risk categories for either of the two banks.


23. SEGMENT INFORMATIONThe Corporation is a multi-bank holding company headquartered in Newark,Ohio. The operating segments for the Corporation are its two chartered banksubsidiaries, The Park National Bank (headquartered in Newark, Ohio)(“PNB”) and Vision Bank (headquartered in Panama City, Florida) (“VB”).Guardian Financial Services Company (“GFSC”) is a consumer finance companyand is excluded from PNB for segment reporting purposes. GFSC is includedwithin the presentation of “All Other” in the segment reporting tables thatfollow. During the third quarter of 2008, Park combined the eight separatelychartered Ohio-based bank subsidiaries into one national bank charter, that ofThe Park National Bank. Prior to the charter mergers that were consummatedin the third quarter of 2008, Park considered each of its nine chartered banksubsidiaries as a separate segment for financial reporting purposes. GAAPrequires management to disclose information about the different types of business activities in which a company engages and also information on the different economic environments in which a company operates, so that theusers of the financial statements can better understand a company’s perform-ance, better understand the potential for future cash flows, and make moreinformed judgments about the company as a whole. The change to two operat-ing segments is in line with GAAP as there are: (i) two separate and distinctgeographic markets in which Park operates; (ii) discrete financial informationis available for each operating segment; and (iii) the segments are aligned withinternal reporting to Park’s Chief Executive Officer, who is the chief operatingdecision maker.

Operating Results for the year ended December 31, 2010 (In thousands)PNB VB All Other Total

Net interest income $ 237,281 $ 27,867 $ 8,896 $ 274,044Provision for loan losses 23,474 39,229 2,199 64,902Other income (loss) 80,512 (3,407) 391 77,496Other expense 144,051 31,623 11,433 187,107

Income (loss) before taxes 150,268 (46,392) (4,345) 99,531Income taxes (benefit) 47,320 (17,095) (4,911) 25,314

Net income (loss) $ 102,948 $ (29,297) $ 566 $74,217

Balances at December 31, 2010: Assets $6,495,558 $808,061 $ (5,242) $7,298,377Loans 4,074,775 640,580 17,330 4,732,685Deposits 4,622,693 633,432 (160,705) 5,095,420


Net interest income $ 236,107 $ 25,634 $ 11,750 $ 273,491Provision for loan losses 22,339 44,430 2,052 68,821Other income (loss) 82,770 (2,047) 467 81,190Other expense 148,048 28,091 12,586 188,725


Net income (loss) $ 101,458 $ (30,110) $ 2,844 $ 74,192

Balances at December 31, 2009: Assets $6,182,257 $897,981 $ (39,909) $7,040,329Loans 3,950,599 677,018 12,815 4,640,432Deposits 4,670,113 688,900 $(170,961) 5,188,052

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The following table reflects various measures of capital for Park and each of PNB and VB:

To Be Adequately Capitalized To Be Well Capitalized(In thousands) Actual Amount Ratio Amount Ratio Amount Ratio

At December 31, 2010:Total risk-based capital

(to risk-weighted assets)PNB $495,668 11.38% $348,452 8.00% $435,565 10.00%VB (1) 122,803 19.55% 50,249 8.00% 62,812 10.00%Park 802,324 15.98% 401,590 8.00% 501,988 10.00%

Tier 1 risk-based capital(to risk-weighted assets)

PNB $410,879 9.43% $174,226 4.00% $261,339 6.00%VB 114,471 18.22% 25,125 4.00% 37,687 6.00%Park 678,506 13.52% 200,795 4.00% 301,193 6.00%

Leverage ratio (to average total assets)

PNB $410,879 6.68% $246,084 4.00% $307,605 5.00%VB (1) 114,471 14.05% 32,585 4.00% 40,732 5.00%Park 678,506 9.77% 277,824 4.00% 347,280 5.00%

At December 31, 2009:Total risk-based capital

(to risk-weighted assets)PNB $473,694 10.89% $348,013 8.00% $435,016 10.00%VB 103,819 14.46% 57,454 8.00% 71,817 10.00%Park 758,291 14.89% 407,366 8.00% 509,207 10.00%

Tier 1 risk-based capital(to risk-weighted assets)

PNB $383,296 8.81% $174,006 4.00% $261,010 6.00%VB 94,408 13.15% 28,727 4.00% 43,090 6.00%Park 633,726 12.45% 203,683 4.00% 305,524 6.00%

Leverage ratio (to average total assets)

PNB $383,296 6.27% $244,368 4.00% $305,460 5.00%VB 94,408 10.77% 35,054 4.00% 43,818 5.00%Park 633,726 9.04% 280,286 4.00% 350,357 5.00%

(1) Park management has agreed to maintain Vision Bank’s total risk-based capital at 16.00% and the leverage ratio at 12.00%.


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Net interest income $ 219,843 $ 27,065 $ 8,965 $ 255,873Provision for loan losses 21,512 46,963 2,012 70,487Other income 81,310 3,014 510 84,834Goodwill impairment charge — 54,986 — 54,986Other expense 137,295 27,149 15,071 179,515


Net income (loss) $ 95,265 $ (81,187) $ (370) $ 13,708

Balances at December 31, 2008: Assets $6,243,365 $917,041 $ (89,686) $7,070,720Loans 3,790,867 690,472 9,998 4,491,337Deposits 4,210,439 636,635 (85,324) 4,761,750

Reconciliation of financial information for the reportable segments to theCorporation’s consolidated totals:

Net Interest Depreciation Other Income(In thousands) Income Expense Expense Taxes Assets Deposits

2010:

Totals for reportable segments $265,148 $7,109 $168,565 $30,225 $7,303,619 $5,256,125

Elimination of intersegment items — — — — (77,876) (160,705)

Parent Co. and GFC totals– not eliminated 8,896 17 11,416 (4,911) 72,634 —

Totals $274,044 $7,126 $179,981 $25,314 $7,298,377 $5,095,420

2009:




Totals $273,491 $7,473 $181,252 $22,943 $7,040,329 $5,188,052

2008:




Totals $255,873 $7,517 $226,984 $22,011 $7,070,720 $4,761,750

24. PARENT COMPANY STATEMENTSThe Parent Company statements should be read in conjunction with the consolidated financial statements and the information set forth below.

Investments in subsidiaries are accounted for using the equity method ofaccounting.

The effective tax rate for the Parent Company is substantially less than the statutory rate due principally to tax-exempt dividends from subsidiaries.

Cash represents noninterest bearing deposits with a bank subsidiary.

Net cash provided by operating activities reflects cash payments (received from subsidiaries) for income taxes of $5.97 million, $5.22 million and $8.23 million in 2010, 2009 and 2008, respectively.

At December 31, 2010 and 2009, stockholders’ equity reflected in the ParentCompany balance sheet includes $143 million and $125 million, respectively, of undistributed earnings of the Corporation’s subsidiaries which are restrictedfrom transfer as dividends to the Corporation.

Balance SheetsDecember 31, 2010 and 2009


Assets:Cash $160,011 $155,908

Investment in subsidiaries 617,317 587,309

Debentures receivable from subsidiary banks 5,000 7,500

Other investments 1,451 1,288

Other assets 69,845 76,821

Total assets $853,624 $828,826

Liabilities:Dividends payable $ — $ 651

Subordinated notes 50,250 50,250

Other liabilities 57,550 60,661

Total liabilities 107,800 111,562

Total stockholders’ equity 745,824 717,264

Total liabilities and stockholders’ equity $853,624 $828,826

Statements of Incomefor the years ended December 31, 2010, 2009 and 2008

(In thousands) 2010 2009 2008

Income:Dividends from subsidiaries $80,000 $75,000 $ 93,850

Interest and dividends 4,789 4,715 3,639

Other 411 489 575

Total income 85,200 80,204 98,064

Expense:Other, net 12,632 10,322 14,158

Total expense 12,632 10,322 14,158

Income before federal taxes and equity in undistributed losses of subsidiaries 72,568 69,882 83,906

Federal income tax benefit 5,993 6,210 8,057

Income before equity in undistributed lossesof subsidiaries 78,561 76,092 91,963

Equity in undistributed losses of subsidiaries (4,344) (1,900) (78,255)

Net income $74,217 $74,192 $ 13,708


Statements of Cash Flowsfor the years ended December 31, 2010, 2009 and 2008

(In thousands) 2010 2009 2008

Operating activities:Net income $ 74,217 $ 74,192 $ 13,708

Adjustments to reconcile net income to net cash provided by operating activities:

Undistributed losses of subsidiaries 4,344 1,900 78,255

Other than temporary impairment charge,investments 23 140 774

Decrease (increase) in other assets 7,321 (18,420) 9,244

(Decrease) increase in other liabilities (3,763) 24,178 2,042

Net cash provided by operating activities 82,142 81,990 104,023

Investing activities:Purchase of investment securities — (113) (158)

Capital contribution to subsidiary (52,000) (37,000) (76,000)

Repayment of debentures receivablefrom subsidiaries 2,500 — —

Net cash used in investing activities (49,500) (37,113) (76,158)

Financing activities:Cash dividends paid $ (62,076) $ (58,035) $(65,781)

Proceeds from issuance of common stock and warrants 33,541 53,475 —

Proceeds from issuance ofsubordinated notes — 35,250 —

Cash payment for fractional shares (4) (2) (3)

Proceeds from issuance ofpreferred stock — — 95,721

Net cash (used in) provided by financing activities (28,539) 30,688 29,937

Increase in cash 4,103 75,565 57,802

Cash at beginning of year 155,908 80,343 22,541

Cash at end of year $160,011 $155,908 $ 80,343

25. PARTICIPATION IN THE U.S. TREASURY CAPITAL PURCHASE PROGRAM

On December 23, 2008, Park issued $100 million of cumulative perpetual preferred shares, with a liquidation preference of $1,000 per share (the“Senior Preferred Shares”). The Senior Preferred Shares constitute Tier 1capital and rank senior to Park’s common shares. The Senior Preferred Sharespay cumulative dividends at a rate of 5% per annum through February 14, 2014 and will reset to a rate of 9% per annum thereafter. For the year endedDecember 31, 2010, Park recognized a charge to retained earnings of $5.8million representing the preferred stock dividend and accretion of the discount on the preferred stock, associated with its participation in the CPP.

As part of its participation in the CPP, Park also issued a warrant to the U.S.Treasury to purchase 227,376 common shares, which is equal to 15% of the aggregate amount of the Senior Preferred Shares purchased by the U.S.Treasury, having an exercise price of $65.97. The initial exercise price for thewarrant and the market price for determining the number of common sharessubject to the warrant were determined by reference to the market price of thecommon shares on the date the Company’s application for participation in theCPP was approved by the United States Department of the Treasury (calculatedon a 20-day trailing average). The warrant has a term of 10 years.

A company that participates in the CPP must adopt certain standards for compensation and corporate governance, established under the AmericanRecovery and Reinvestment Act of 2009 (the “ARRA”), which amended andreplaced the executive compensation provisions of the Emergency EconomicStabilization Act of 2008 (“EESA”) in their entirety, and the Interim Final Rulepromulgated by the Secretary of the U.S. Treasury under 31 C.F.R. Part 30 (collectively, the “Troubled Asset Relief Program (TARP) CompensationStandards”). In addition, Park’s ability to declare or pay dividends on or repurchase its common shares is partially restricted as a result of its participation in the CPP.

26. SALE OF COMMON SHARES AND ISSUANCE OF COMMON STOCK WARRANTS

During 2009, Park sold a total of 904,072 common shares, out of treasuryshares, and issued, in conjunction with the October 30, 2009 registered publicoffering, 500,000 Series A/Series B Common Share Warrants. The commonshares were issued at a weighted average sales price of $61.20 with net pro-ceeds of $53.6 million. Through December 31, 2009, there were no exercisesof the Series A/Series B Common Share Warrants.

During the year ended December 31, 2010, 437,200 common shares wereissued upon the exercise of the Series A and Series B Common Share Warrantsat a price of $67.75 per common share. Park raised $28.7 million, net of allselling costs, from the sale of the 437,200 common shares. The remainingportion of the Series B Common Share Warrants Park issued in October 2009(covering 62,800 common shares) expired on October 30, 2010.

In addition, on December 10, 2010, Park sold, in a registered direct publicoffering, 71,984 common shares, out of treasury shares, for gross proceeds of $5.0 million. In addition to the common shares, Park also issued:

■ Series A Common Share Warrants, which are exercisable within sixmonths of the closing date, to purchase up to an aggregate of 35,992common shares at an exercise price of $76.41.

■ Series B Common Share Warrants, which are exercisable within twelvemonths of the closing date, to purchase up to an aggregate of 35,922common shares at an exercise price of $76.41.

Net proceeds (net of all selling and legal expenses) from the December 10,2010 sale of 71,984 Common Shares and Series A/Series B Common ShareWarrants was $4.8 million. Through December 31, 2010, there were no exercises of the Series A/Series B Common Share Warrants issued in this registered direct public offering.

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